Oil prices at year end 2008

[INDY500]

Why can't he drive the price of baseball cards? I'd be able to retire in a flash.

And make steroids legal retroactively. My '87 Bonds and '85 Clemens & McGwires have all tanked.

 

[sue4u2]

something tells me, similar to what happened with the hostages in iran with in 1980, that OPEC will all of a sudden not have the same supply/demand issues the day bush leaves office... especially if obama wins, but i think even if mccain wins we'll still see something done.

I would have thought that a few years ago, but I'm not so sure now.
I'll admit I don't understand all the factors that determine the price of oil , speculation and futures etc, but it really seems like they (OPEC) are extorting everything they can because they know there is going to be a huge push towards alternative fuel projects (some already in the implementation stage) going into effect after Bush gets out of office.
OPEC has said they are running at full capacity because China and India are advancing in the global market and requiring more oil. Well it seemed like prices happened right around the time the candidates started talking about all the possiblities for alternative fuel.
I have never seen gas prices change overnight - everynight. It's absurd.

 

[ntalwar]

it really seems like they (OPEC) are extorting everything they can because they know there is going to be a huge push towards alternative fuel projects (some already in the implementation stage) going into effect after Bush gets out of office.

With oil at almost $140 a barrel (double from 9 months ago), OPEC would be dumb to not pump more. Non-OPEC production (around 65% of world total) has been flat to down as well. Russia, a non-OPEC country that is the 2nd largest exporter after Saudi Arabia, has had flat to lower oil exports. Canada and Mexico are the #1 and #3 oil importers for the US, and are not in OPEC. Mexico's largest oil field (Cantarell) is in serious decline and Venezuela's exports have fallen as well. This was especially apparent in recent EIA reports, which showed almost critically low oil storage levels among the Gulf Coast refineries. They will now have to replace that oil from other sources. It's also not in OPEC's interest to withhold oil because their sovereign wealth funds (frequently in the hundreds of billions of dollars) invest overseas.

Global oil demand has been increasing, while production and exports have been flat to down. For the past few months, demand has actually exceeded supply. Oil experts like T. Boone Pickens and Matt Simmons have stated that the current oil production "flow rate" of around 85 mbpd is the maximum - it has been at this level since around 2005. Matt Simmons has a great book called Twilight in the Desert.

Because there has been no large scale movement towards conservation, high prices will be necessary to force conservation. We should also realize that we as a nation are addicted to oil. There are really no alternative fuels being used on anything but a very small scale. And the ethanol in our gas is very oil-intensive to produce and distribute.

 

[financeguy]

America is lone bright spot as fund managers flee stocks - Telegraph

Russia (+75) remains the darling of the emerging universe, but for how long? Almost two thirds of investors say oil is fundamentally overvalued. They appear to be hanging on to their oil and gas exposure as a late-cycle "momentum play".

 

[financeguy]

My 2c, even allowing for the reducing supply, etc, what we have now is to SOME EXTENT a speculative bubble.

So, assuming we don't have a war, and we do have a global recession - my initial prediction stands. My prediction is predicated on no war, and a recession.

 

[melon]

My 2c, even allowing for the reducing supply, etc, what we have now is to SOME EXTENT a speculative bubble.

This argument does have past precedent on its side. We may, indeed, be mirroring the commodities bubble of the 1970s, and just as people thought the economic world was going to end then, people are certainly thinking it now.

My primary argument in favor of the hydrogen economy to get away from oil altogether is mainly a factor of environmental and national security concerns. It is very hard to try and pursue the "moral high ground" when you are dependent on hostile nations for your energy needs and are implicitly funding their belligerency with oil revenues.

 

[financeguy]

This argument does have past precedent on its side. We may, indeed, be mirroring the commodities bubble of the 1970s, and just as people thought the economic world was going to end then, people are certainly thinking it now.

Indeed, and though not specifically concerning oil I recall who won the Simon-Ehrlich wager:- Simon-Ehrlich wager - Wikipedia, the free encyclopedia

 

[financeguy]

It is very hard to try and pursue the "moral high ground" when you are dependent on hostile nations for your energy needs and are implicitly funding their belligerency with oil revenues.

I do not mean to start a political argument in this thread, but in the past decade mostly all of the hostility and belligerency has come from the side of your country.

But if Americans THINK that their country is permanently under threat from belligerent, hostile enemies, then I suppose they will elect governments accordingly, and a siege mentality will become a self-fulfilling prophecy.

 

[ntalwar]

Speculation adds perhaps a few dollars on top of the supply and demand component of oil. Oil is different from other commodities in that once you burn it, it is gone forever.

To quote George Soros:
"The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality,"

The 1970s energy crisis was a lot different from today's. The output from large oil exporters (Saudi Arabia, Russia, Mexico, Norway, and Venezuela) is down year over year and major oil fields are in decline. The recent high oil prices have caused demand destruction of around 3% compared to last year in the US, but oil inventories are still below the 5-year average. If oil prices fall, people will simply use more. We will see continued price volatility this year, but the long term price trend is still up.

 

[melon]

I do not mean to start a political argument in this thread, but in the past decade mostly all of the hostility and belligerency has come from the side of your country.

But if Americans THINK that their country is permanently under threat from belligerent, hostile enemies, then I suppose they will elect governments accordingly, and a siege mentality will become a self-fulfilling prophecy.

The events of the past decade aside, if one believes such values as freedom, equality, and civil rights to be inalienable and then our economic actions support those nations that act contrary to all of them, then it is acceptable to argue that such actions are "immoral," so to say. However, it is hard to take the moral high ground against arrest of political prisoners or genocides of ethnic minorities, if you're dependent on such nations to operate at even a basic level.

I'm not about to argue, specifically, that Bush is particularly fighting for any of these values, partly because his recent alliances in Africa, for instance, have included dictatorships with terrible human rights records. It is, more likely, overtures to secure natural resources that we are scarce in, such as minerals and oil. And Bush, certainly, has no intrinsic personal interest in weaning us off of oil, considering his background in oil and his close family relationship with the oil-rich House of Saud.

Nonetheless, I think it is acceptable to draw a line in the sand, so to say, and argue that we should stand up to those nations who act with little regard for its citizenry. That doesn't mean a rush to war or an automatic economic embargo for every nation that does something unsavory. It is, however, impossible to have any leverage in this arena, if you are wholly economically dependent on such nations for your basic economic and energy needs. We had a problem with these "petro-nations" even in the 1970s, and things just get worse when you're dealing with a dictatorship or "democratatorship" rolling in oil money.

 

[financeguy]

Speculation adds perhaps a few dollars on top of the supply and demand component of oil.

Why only a few dollars? This does not make sense to me. Why is it ONLY with oil that speculation adds only a few dollars on top of the supply/demand component?

 

[ntalwar]

Why only a few dollars? This does not make sense to me.

Because the market fundamentals overtake any froth sooner or later (usually quickly). E.g oil was overbought at $146, and quickly plunged to the proper demand/supply price of $136.

. Why is it ONLY with oil that speculation adds only a few dollars on top of the supply/demand component?

It's not only with oil. Look at the charts for some ag. products (soybeans, wheat, rough rice, etc), many of which are thinly traded compared to oil. The ag. prices rose sharply early in the year, then quickly plunged as fundamentals took over (supply flooded the market). The oil market is still waiting to be flooded with supply (perhaps we'll see an SPR release before the elections).

 

[financeguy]

JP Morgan analyst says drop in oil price shows 'bubble'.

Bloomberg News

 

[ntalwar]

JP Morgan analyst says drop in oil price shows 'bubble'.

Bloomberg News

It's way too soon to call it a bubble. Different banks' analysts have different views. The price got a bit too far ahead of demand, and is currently working towards equilibrium. The same level of supply cannot be assumed in the future. In six or twelve months, we will have a better idea of whether it was a bubble, depending on the price at that time.

 

[financeguy]

Commodities such as oil could be the latest bubble about to burst - Telegraph

Over the past two weeks, the price of soft commodities has fallen by 10pc and the price of oil has dropped by $20 per barrel. Could this be the beginning of a pronounced fall?

It is much too early to say. Although the recent drop in commodity prices looks particularly sharp, during the long upswing there have regularly been falls in prices. It is as though the market has needed to pause for breath before going on to each new peak. This is fully in accordance with most financial markets, which never go all in one direction. The need to take profits leads to frequent corrections in a trend which may continue for years. It is perfectly possible that this will happen again to commodities.

But I believe that a fundamental correction is due at some point. This could be it. In the short term, both supply and demand are pretty unresponsive to prices. On oil, for instance, decisions have been made on heating and transport equipment and costs have been sunk, for both individuals and companies. Habits of consumption are ingrained. Meanwhile, for suppliers, it is often not possible to raise production immediately. Costs have to be incurred to raise production capacity. But, given time, both supply and demand can respond.

My suspicion is that commodities, including oil, are the last in a series of bubbles built up over the past 15 years in the era of free-for-all finance and low interest rates: the first was the emerging market bubble which burst with the East Asian crisis of 1997-98. The second was the dotcom boom. Then came the property bubble in both residential and commercial real estate, pretty much simultaneously with the bubble in risk and credit instruments. Commodities are the market to which the bubble-blowing machine which is the modern financial system turned its attention once the property bubble looked like bursting. If I am right, then the potential size of the fall in commodity prices will be greater and it could come sooner.

If commodity prices do fall sharply then this news will be predominately good, undermining one of the two forces which have weakened world growth and threatened the stability of the financial system. For lower commodity prices would reduce headline inflation rates everywhere and put more money in consumers' pockets. Lower interest rates would still not be a done deal because increased consumer purchasing power could be construed as strengthening the forces bearing on non-commodity inflation. But my guess is that this would be outweighed by the easing of inflation fears, allowing central banks to bring some relief to the beleaguered housing and financial sectors through lower interest rates.

 

[ntalwar]

Earlier, oil-rich nations opened their spigots to prevent run-ups in prices. In the early 1980s, oil from the British and Norwegian North Sea started to flow in large volumes and helped push down prices even as war raged between Iran and Iraq, disrupting Mideast supplies. During the Persian Gulf War after Iraq invaded Kuwait in 1990, Saudi Arabia increased production to head off a spike in oil prices.

But now, the cushion is all but gone. And Saudi Arabia, which is home to what little spare capacity remains, has become reluctant to temper price increases by boosting production. Quite the reverse, the kingdom and its fellow OPEC members have trimmed production on those few occasions when prices showed signs of slipping, most recently in late 2006.

That has left the global oil market particularly vulnerable to threats as varied as hurricanes in the oil-rich Gulf of Mexico, the potential for war with Iran and pipeline attacks by small groups of insurgents in remote parts of the Niger Delta.

washingtonpost.com

 

[financeguy]

Deutsche calls the top of the commodity cycle - Telegraph

Very bearish report from Deutsche Bank:-

Deutsche Bank has called the top of the commodity cycle. The uber-bulls of the oil, food and metals boom have advised clients to take profits before the downturn engulfing most of the global economy works its inevitable effects.

Oil will slide back towards its "marginal production cost" of $60 to $80 a barrel; gold will slump to $650 an ounce as the dollar recovers against the euro; copper, lead and tin will slowly halve in price; grains will calm down as harvests in Australia and the Eurasian Steppe return to normal.

The report comes on cue. The CRB commodity index fell 10pc last month, the steepest one-month drop since the onset of the Volcker crunch in 1980. Most raw materials have been slipping for months. Crude was the last to turn after peaking at $147 early last month.

advertisementDeutsche Bank says this year's oil surge has been a quirk. Misjudging demand, Saudi Arabia cut output by 400,000 barrels a day (bpd). Several upsets hit the non-Opec bloc of Russia, Norway, the UK, and Mexico. Rebels caused mayhem in Nigeria. Global supply is now creeping back into surplus.

 

[Caroni]

I think is time to use other tipes of energy!

 

[ntalwar]

"Oil will slide back towards its "marginal production cost" of $60 to $80 a barrel; gold will slump to $650 an ounce as the dollar recovers against the euro;"

Trichet is a bigger inflation hawk than Bernanke, so I don't see that happening. We may say a further slight seasonal dip in oil prices in the next month or two, but the fourth quarter will probably see prices rise again.

 

[Vincent Vega]

I wanted to pay my uni bill in the US and now it's down to 1.5461 again.

 

[bonoman]

"Oil will slide back towards its "marginal production cost" of $60 to $80 a barrel

I cant see Oil dropping to this level. Up here where I live (northern alberta) we have more proven reserves than the Saudi's and the investments going on up here are something to be seen. Every few months there is another 10billion dollar mega project announced.

The oil in Alberta, tarsands or oilsands, is very hard to extract. Some call it Dirty oil (Al Gore), this dirty oil is much more expensive to get out of the ground, it involves total strip mining and alot of upgrading. These oil companies (mainly American groups) are pushing 100% ahead for projects that are 5-10 years from seeing profits, they must know something we dont as they wouldnt be investing so much without really believing that oil is going to stay very high. 32$ a barrel is what I believe to be their breakeven point for oil that is extracted out of the oilsands. And their profit margins have to be pretty thick on top of that 32$.

Oh the money these oil companies have!

 

[ntalwar]

I cant see Oil dropping to this level.

Same here. The breakeven point for a lot of new offshore projects being planned is even higher, as daily rates for a deepwater drill can be a half million dollars or more, and platforms can cost a few hundred million to build.

 

[financeguy]

There's a war after breaking out in Ossetia and oil STILL goes down.

That is indicating to me that this is a Bear market - barring, of course a worsening in this conflict.

 

[anitram]

How much of the oil drop has to do with the Enron loophole being closed several weeks ago when the omnibus Farm Bill was passed?

 

[financeguy]

How much of the oil drop has to do with the Enron loophole being closed several weeks ago when the omnibus Farm Bill was passed?

Do you have a link for this?

 

[anitram]

A couple:

Political Radar: Congress Seeks to Close the 'Enron Loophole'

Jim Hamilton’s World of Securities Regulation

I have done a bit of securities work but I'm really not well versed in this area so I'm wondering about everyone else's thoughts.

 

[ntalwar]

There's a war after breaking out in Ossetia and oil STILL goes down.

That is indicating to me that this is a Bear market - barring, of course a worsening in this conflict.

The dollar had the biggest one day gain in around 8 years as well. Oil demand typically declines in the fall, and China has a few million cars off the road for the Olympics. So we are in a bearish trend for now - we'll see how long it lasts. OPEC would probably be happy with around $100 - 110 a barrel - anything much higher and they feel threatened by talk of substitutes.

 

[ntalwar]

Oil's up around $10 over the past 2 days. Was the selloff to $110 overdone? I think around $105-110 will be the price floor for the rest of the year.

 

[financeguy]

It's looking that way, right enough.

 

[anitram]

I thought if we ended up at $105, that would be good.

Hey, good guess!