Is oil goting to land at $45 a barrel?

[wonder]

While oil has hit a series of record high price in the past five consecutive days, Mike Rothman, a contrarian and top-ranked energy analyst, says oil is going to land at $45 to $50 in his interview with Barron.com this week:

"When you measure oil demand in a developing world economy, you're looking at disappearance, because the data for actual consumption by countries is very difficult to come by, and in many cases nonexistent. Then the question is whether that volume makes sense given other types of data. All I know is that for the last three years, I've revised my numbers down for China. It is not that they are not having oil-demand growth, but it is not 15%. It is 5%. It is 4%. It is 6%. It is 3%. It ain't 15%"

"It is very hard for me to say that I am a bear when I think oil is going to land at $45 to $50; historically, oil prices eventually settling at $45 to $50 is quite high. But compared to what the market is pricing and compared to probably most of my contemporaries, my forecast makes me a bear. We recommend underweighting the sector right now." (full article (http://online.barrons.com/article/SB118981092541828147.html?mod=article-outset-box)..)

How likely is oil going to land at $45 a barrel? And should investors be underweight the energy sector?

[Tet]

While oil has hit a series of record high price in the past five consecutive days, Mike Rothman, a contrarian and top-ranked energy analyst, says oil is going to land at $45 to $50 in his interview with Barron.com this week:

"When you measure oil demand in a developing world economy, you're looking at disappearance, because the data for actual consumption by countries is very difficult to come by, and in many cases nonexistent. Then the question is whether that volume makes sense given other types of data. All I know is that for the last three years, I've revised my numbers down for China. It is not that they are not having oil-demand growth, but it is not 15%. It is 5%. It is 4%. It is 6%. It is 3%. It ain't 15%"

"It is very hard for me to say that I am a bear when I think oil is going to land at $45 to $50; historically, oil prices eventually settling at $45 to $50 is quite high. But compared to what the market is pricing and compared to probably most of my contemporaries, my forecast makes me a bear. We recommend underweighting the sector right now." (full article (http://online.barrons.com/article/SB118981092541828147.html?mod=article-outset-box)..)

How likely is oil going to land at $45 a barrel? And should investors be underweight the energy sector?

I would think China's demand numbers go way down. Three Gorge came on line in December with another equivalent hydro-electric plant coming on line in the next three years. I think China is completing 3 to 4 nuclear power plants every year for the next 15-years. Solar and wind power is supposed to supply 10%-15% of China's electrical needs in the coming years. Most importantly though, Russia does not require d0llars for the crude they'll be exporting to China once the pipeline is completed. I don't see much of the demand increase that gets talked about, plus much of the increase in China will be offset by the loss of energy requirements for the country that used to build whatever it is China is building.

[ExampleGiven]

Electricity generation isn't the issue. Most oil is used for transportation. Look at the number of new vehicles built for use in China, India and Russia. Damand destruction for oil is occuring in the third world, but it is being offset by all those new cars in the emerging economies. In addition at 45 dollars a barrel things like the Canadian tar sands (and other heavy oils) would go offline as being unprofitable reducing supply. We may see 50 again, but not for long.

[Tet]

Electricity generation isn't the issue. Most oil is used for transportation. Look at the number of new vehicles built for use in China, India and Russia. Damand destruction for oil is occuring in the third world, but it is being offset by all those new cars in the emerging economies. In addition at 45 dollars a barrel things like the Canadian tar sands (and other heavy oils) would go offline as being unprofitable reducing supply. We may see 50 again, but not for long.

If crude hit $10 about 10-years ago after being over $90 in today's d0llars thirty years ago, crude can certainly break well below $40, timing is everything, the tar scam is pretty profitable and very politically connected. Once again we somehow manage to save the world from certain extinction from global warming and Peak Oil, the earth cools, crude heads lower, war ends, peace breaks out until the war starts again, it's a never ending story.

[EJ]

The article states that the global oil supply is up, global oil demand is down, but prices are rising. The author is mystified.

I had lunch on a few occasions with Dudley Fishburn in Cambridge in early 2000. At the time he was managing editor of The Economist and on Harvard's Board of Trustees, which is what he was doing in Cambridge.

I teased him at one of our lunches about the famous Economist article "Drowning in Oil (http://www.casi.org.uk/discuss/1999/msg00181.html)" that predicted oil to soon collapse to $5 and stay there for the foreseeable future. At the time, the Fed and global central banks were already cranking up the post stock market bubble printing presses; oil had shot up from $10 when the article was published to $25 when we were eating lunch.

He replied something along the lines of "Well, I suppose the lesson is to never underestimate the willingness of government to mess with money."

I showed him a couple of numismatic gold coins I'd purchased that day, and he said he'd probably buy some, too.

Just returned from my local coin shop. Seems that while gold bullion prices are shooting up, the spread on gold numismatics is shooting up even more. The MS63 $20 St. Gaudens that cost me $445 each are now going for $1,100, if you can get them.

There is only one exit door in the US bubble economy and that's the one marked: Inflation.

[ExampleGiven]

Originally Posted by Tet
If crude hit $10 about 10-years ago after being over $90 in today's d0llars thirty years ago, crude can certainly break well below $40, timing is everything


Anything is possible. In the original article there is a graph showing the big drops There could be another emargo like in 73, or a war between iran and Iraq (80 - 88) that pushes up the price for a time, even a long time. Make your own judgements regarding the current political situation.



Originally Posted by Tet
the tar scam is pretty profitable and very politically connected.


Last thing I read about the tar sands was that the Canadian government was talking about raising the royalties for extraction. Maybe not politically connected enough.



Originally Posted by EJ
The article states that the global oil supply is up, global oil demand is down, but prices are rising. The author is mystified.


Everything I have read is that oil production is relatively flat. The EIA and IEA have all the charts, graphs and numbers you could possibly want. Look for yourself.

I agree inflation/falling dollar will take it's toll as well.

[Lukester]

ENERGY HEADLINES

SEP 19 US Oil Supplies Drop More Than Expected (http://money.cnn.com/news/newsfeeds/articles/apwire/D8ROJI182.htm) (Associated Press)
Excerpt: For the week ending Sept. 14, crude oil inventories fell by 3.8 million barrels to 318.8 million barrels, or 3.9 percent below year-ago levels, the Energy Department said in its weekly report. Analysts surveyed by Dow Jones Newswires expected crude inventories to fall by 1.5 million barrels.

SEP 18 Alaska oil output 9 pct under target amid BP snags (http://investing.reuters.co.uk/news/articleinvesting.aspx?type=allBreakingNews&storyID=2007-09-18T200631Z_01_N18440321_RTRIDST_0_OIL-ALASKA-UPDATE-2.XML) (Reuters)
Excerpt: Alaska North Slope oil production has averaged 695,000 barrels per day since the 2008 fiscal year began on June 1, well below the 764,000 bpd annual level projected by the state in its most recent oil output forecast released this spring.

SEP 17 OPEC'S export capacity to fall - Driving oil prices to US$100 barrel in 2008, forecasts leading oil economist at global energy conference (http://money.cnn.com/news/newsfeeds/articles/prnewswire/TO12517092007-1.htm) (CNN Money)
Excerpt: Speaking at the 6th Annual Association for the Study of Peak Oil & Gas conference in Cork, Ireland, CIBC World Markets chief economist, Jeff Rubin told delegates that the export capacity of OPEC, Russia and Mexico will drop by 2.5 million barrels per day by the end of the decade.

SEP 17 Goldman sees oil surging to $85 by year end (http://www.reuters.com/article/hotStocksNews/idUSL1723509120070917) (Reuters)
Excerpt: Goldman Sachs on Monday forecast U.S. oil prices will surge to $85 by the end of the year, and said crude could climb as high as $90 due to tight supplies... Goldman forecast prices to rise as high as $95 by the end of next year. It estimated 2008 prices to average $85 a barrel.

SEP 13 Oil hits new high above $80 (http://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2007-09-13T164158Z_01_SP57154_RTRIDST_0_BUSINESS-MARKETS-OIL-COL.XML) (Reuters)
Excerpt: "Modest demand growth combined with no significant supply increases has caused oil inventories to decline sharply, creating backwardation in the oil forward curve, which is a very bullish signal," said Jeffrey Currie of Goldman Sachs.

SEP 12 Oil prices stay above US$78 after reaching record highs (http://www.iht.com/articles/ap/2007/09/12/business/EU-FIN-MKT-Oil-Prices.php) (International Herald Tribune)
Excerpt: Oil prices held above US$78 a barrel Wednesday after finishing at a record close the previous session as a production increase from OPEC failed to calm market concerns about the availability of supplies for winter in the Northern Hemisphere.

SEP 11 Mexican Gas Pipelines Attacked Again (http://online.wsj.com/article/SB118942973915322506.html?mod=world_news_whats_new s) (Wall Street Journal)
Excerpt: The previous EPR action was largely dismissed as an isolated event. But yesterday's repeat performance is evidence of the group's potential to become a major security headache for the Mexican government, and possibly even a threat to U.S. oil supplies.

SEP 10 IEA's Tanaka says oil supplies very tight, sees rise in oil demand (http://www.forbes.com/markets/feeds/afx/2007/09/10/afx4099034.html) (AFX News)
Excerpt: The executive director of the International Energy Agency, Nobuo Tanaka, said at a conference here that the oil market remains very tight, and he is expecting an increase in world oil demand until the end of this year, and into the beginning of next year.

SEP 7 Mexico's Pemex sees dip in 2008 oil output (http://uk.reuters.com/article/oilRpt/idUKN0638723620070906) (Reuters)
Excerpt: Mexico's Pemex is forecasting crude oil output in 2008 of 3.14 million barrels per day, down 0.7 percent from current levels, according to a document being used to set the state oil monopoly's spending budget for next year.

SEP 7 StatOil Sees OECD Peak (http://www.canada.com/nationalpost/financialpost/story.html?id=9f2eb7c3-6665-4053-a65b-f49d8f2c15d5&k=25597) (Financial Post)
Excerpt: Production of conventional oil in OECD countries will peak as soon as in 2010, increasing the world's dependence on the OPEC cartel and Russia, and continuing the rush to non-conventional deposits such as Alberta's oilsands, the chief executive of Norway's Statoil ASA predicted yesterday.

SEP 6 Crude Oil Rises to a Five-Week High After U.S. Inventories Drop (http://www.bloomberg.com/apps/news?pid=20601087&sid=aWcn_g8HzOe0&refer=home) (Bloomberg)
Excerpt: Crude oil rose to a five-week high after an Energy Department report showed that U.S. oil and gasoline inventories declined more than expected last week.

SEP 5 Chesapeake Energy Cutting Production (http://www.forbes.com/feeds/ap/2007/09/04/ap4081236.html) (Associated Press)
Excerpt: The Oklahoma City-based company expects to reduce its net daily production by about 125 million cubic feet per day, or about 6 percent of its current output. It also plans to reduce drilling levels, cutting its budgeted costs by about 10 percent in 2008 and 2009.

AUG 30 Global oil reserves up only 1% last year (http://www.canada.com/nationalpost/financialpost/story.html?id=7bd3bdc5-8af5-425a-9875-7507731c1c52&k=93003) (Financial Post)
Excerpt: The industry had disappointing reserve addition results despite looking hard for new deposits: Exploration spending grew by 39%, the largest jump in five years. Meanwhile, with too much cash from high oil prices chasing too few prospects, oil and gas companies spent more money buying back their stock in the past two years than they did acquiring proved reserves, the study found.

AUG 28 In Caspian, Big Oil Fights Ice, Lethal Fumes -- and Kazakhs (http://online.wsj.com/article/SB118824035440810037.html?mod=hps_us_whats_news) (Wall Street Journal)
Excerpt: Since an unlikely alliance of Western oil companies received rights to drill for oil here a decade ago, they've struggled to cope with a combination of rig-wrecking ice packs, bone-chilling winters and noxious, high-pressure gases. Yesterday, the consortium's bid to exploit one of the world's top oil deposits encountered its biggest challenge yet: Kazakhstan's government, stung by delays and rising costs, suspended the group's permit for the field, halting work there for the next three months... Projected costs over the 40-year life of the project, he [Kazakh Prime Minister] said, had increased to $136 billion from $57 billion. "When they rise by two and a half times, either the planning was wrong, or the execution is wrong, or it was deliberate."

AUG 24 Saudi domestic oil consumption up 6.2pc in ’06 (http://www.khaleejtimes.com/DisplayArticleNew.asp?xfile=data/business/2007/August/business_August483.xml&section=business&col=) (Khaleej Times)
Excerpt: Saudi Arabia's domestic oil consumption last year went up by 6.2 per cent to 2 million barrels per day (bpd) from 1.89 million bpd in 2005 in the wake of economic boom, while its oil production for the international market declined by 2.3 per cent during the same period, according to the ŒBP Statistical Review of World Energy June 2007' released recently.

AUG 24 Indonesia concerned over declining oil output (http://english.people.com.cn/90001/90777/6247435.html) (Xinhua)
Excerpt: "The current production hovers around 900,000 barrels per day, and we have set a target of 1.03 million barrels per day for the 2008. Any loss of just 0.1 (percent) from the target would cost us one trillion rupiah (around 106.5 million U.S. dollars)," Finance Minister Sri Mulyani Indrawati said at her office here... A decade ago, Indonesia enjoyed high oil output of 1.3 million barrels per day...

AUG 21 IEA concerned about hurricane's impact on Mexico oil production (http://www.forbes.com/afxnewslimited/feeds/afx/2007/08/21/afx4038426.html) (AFX News)
Excerpt: He said that, of the two million barrels a day produced offshore in Mexico, '1.5 million barrels a day is on the route of the hurricane.' Hurricane Dean was heading for Mexico with monstrous force on Tuesday ahead of landfall expected within hours, after strengthening into a 'potentially catastrophic' category five hurricane.

AUG 15 China's Dependency on Oil Imports (http://online.wsj.com/article/SB118717236281798290.html?mod=googlenews_wsj) (Wall Street Journal)
Comment: With China's imports on the rise and production wavering, the prospects for rising oil prices remain firmly intact.
Excerpt: In July, China imported a record 14.83 million tons of crude... China's crude oil output totaled 15.47 million metric tons in July, equivalent to 3.66 million barrels a day -- 1.7% lower than the same period last year.

AUG 10 World needs more OPEC oil, and quickly - IEA (http://africa.reuters.com/wire/news/usnBAN029240.html) (Reuters)
Comment: The real question is... does OPEC even have any more oil?
Excerpt: The need for more OPEC oil is growing more urgent to avoid a worrying drop in global inventories faced with ever rising demand, the International Energy Agency said on Friday.

AUG 7 Peak oil: what's ahead? (http://www.energybulletin.net/33200.html) (Energy Bulletin)
Comment: A three part (so far) treatise on the issues of Peak Oil that makes for an interesting read.

AUG 3 Oil Trades Near $77 on U.S. Crude Supply; OPEC Curbs Deliveries (http://www.bloomberg.com/apps/news?pid=20601082&sid=asrW8ngMJ3xE&refer=canada) (Bloomberg)
Excerpt: Oil stockpiles dropped 6.5 million barrels last week, the largest decline this year, as U.S. refiners boosted operating rates to a 13-month high, according to Energy Department data. The Organization of Petroleum Exporting Countries will probably cut deliveries 0.4 percent in the four weeks to Aug. 18 from the previous month, Oil Movements said.

AUG 2 Oil Hits All-Time High Amid Peaking Supplies, Soaring Demand (http://www.emediawire.com/releases/2007/8/emw543862.htm) (PRWeb)
Excerpt: Perhaps most worrisome for oil markets are growing indications that Saudi Arabia, the world's top oil exporter, may have peaked. Crude output has fallen 10% over last year and many observers say the desert kingdom -- and by extension OPEC -- may be unable to boost flows to cool prices. "A new meta-concern is beginning to take hold," says Richard Katz with SF Informatics, an energy-education organization based in San Francisco. "Everywhere you look, crude production has either hit a plateau or is declining." If the trend continues, he says, world oil production as a whole may tip into permanent decline, if it hasn't done so already. "Welcome to peak oil," says Katz.

[Starving Steve]

While oil has hit a series of record high price in the past five consecutive days, Mike Rothman, a contrarian and top-ranked energy analyst, says oil is going to land at $45 to $50 in his interview with Barron.com this week:

"When you measure oil demand in a developing world economy, you're looking at disappearance, because the data for actual consumption by countries is very difficult to come by, and in many cases nonexistent. Then the question is whether that volume makes sense given other types of data. All I know is that for the last three years, I've revised my numbers down for China. It is not that they are not having oil-demand growth, but it is not 15%. It is 5%. It is 4%. It is 6%. It is 3%. It ain't 15%"

"It is very hard for me to say that I am a bear when I think oil is going to land at $45 to $50; historically, oil prices eventually settling at $45 to $50 is quite high. But compared to what the market is pricing and compared to probably most of my contemporaries, my forecast makes me a bear. We recommend underweighting the sector right now." (full article (http://online.barrons.com/article/SB118981092541828147.html?mod=article-outset-box)..)

How likely is oil going to land at $45 a barrel? And should investors be underweight the energy sector?

Thinking about the so-called solutions to the oil crisis being employed to-day thanks to the eco-frauds ( windmills, solar roofs, geo-thermal, corn ethanol, etc. ), oil is headed for $145 per barrel, not $45.

And thinking about the collapsing U.S. dollar and people now being forced to invest in oil as a commodity just as a store of value alone, then definitely $145 oil is the possible future, not $45 oil.

Get Bernankee out of the Fed. Get rid of Bush and all of the supply-side Republicans. Double or triple taxes in the U.S. Knock-out Iran. Build nuclear power plants everywhere in the world. Push-up interest rates in Europe and the USA to 10% for savers. Then, oil will drop to $45, or even lower.

But the idiots running the central banks, Bernankee included, don't want to face-the-music, so fasten your seat belts, kiddies, because we are on our way up to the moon with oil prices. Oil and energy are going to be real tight--- until the cows come home.

And don't talk to me about the Elliot Wave idiots and their deflation forecasts because they have been 100% wrong for decades. WRONG. And with the central bankers we have, the Elliot Wavers (like Bob Prechter) will continue to be 100% wrong.

[Lukester]

Lots of interesting ideas there Starving Steve - You'll find some people agree with you on some of them and others don't (Natch).

With regard to Prechter? No use beating a dead horse. That one's got flies buzzing around it here, although there are one or two erudite (and occasionally spooky) Prechter apologists among us, who do exhibit bursts of genius once in a while in that direction. Get's you worrying. But worry is good, so don't worry be happy etc. ?? :confused:

Wouldn't it be a crashing bore though, if every last one of us really thought all of Prechter's issues were a "dead horse"? Variety is the spice of life. Without variety, we are fit only to bore everyone else to tears, or to sleep.

BTW - don't EVER get Metalman started on Robert Prechter or he'll bend your ear worse than anything you can imagine. Metalman imported the animated "flogging a dead horse" symbol around here too, but that's anopther story. If you ever even mention Prechter, he'll start flogging the poor critter all over again.

Welcome to the dysfunctional (occasionally savant) iTulip zoo!