PDA

View Full Version : Is oil going down?



Jim Nickerson
09-26-06, 12:02 PM
John Mauldin in Outside The Box just put up an article by Charles Gave http://www.investorsinsight.com/otb.aspx in which Gave concludes:


The points made above could arguably have been made a year ago. So our "down to earth" clients might very well wonder what will make oil prices fall in the coming year since all these good arguments definitely did not work over the past year. The differences today compared to a year ago are that:

Oil prices started rising above their long term trend nearly three years ago.
The substitution effect should thus soon start kicking in.
The 'oil as a weapon' really started to come into force in the past 18 months.
According to OECD leading indicators, global growth is no longer in an ascending phase.For all of the above reasons, we continue to believe that the structural decline of oil will happen sometime in the coming quarters. After the 1970s/early 1980s boom and bust, it took twenty-five years for oil to recapture its previous highs.

Once the coming bust gets underway, oil may never recapture the highs it makes (made?) in the current cycle, if for no other reason that, twenty years ago, there was no credible alternative for short-haul transportation, heating, air conditioning, etc... (Remember Chernobyl, Three Mile Island...). Today, and even more tomorrow, credible alternatives will be in place.

The underlined emphasis is mine. I found this interesting and contrarian. Finster has previously noted somewhere in these fora, if I recall correctly, that oil's behavior is not consistent with the notion of peak oil.

Does anyone believe oil is still going to 100 Bonars per barrel?

jk
09-26-06, 12:21 PM
Does anyone believe oil is still going to 100 Bonars per barrel?

it could go to 100 quickly, depending on geopolitical events. as gave points out in his article, the oil is in very unstable parts of the world.

it could go to 100 slowly, depending on the lack of political will to develop alternatives in the developed world. when oil first shot up, the reaction of legislators in this country, both national and state, was to discuss LOWERING gas taxes to try to keep the price down, and thus, of course, encourage more consumption and dependence. with increased demand in asia, and a lack of leadership in the u.s., oil could go up in fits and starts, certainly to 100 or higher.

the other problem with gave's piece is that the countervailing factors, weighing against higher oil prices, all will take many years to unfold in even the best of circumstances.

oil might go down substantially in the next few years in the face of a global recession. if this accompanies a significant decline in the u.s. dollar we might see a higher price in dollars with a lower price in yen and yuan and euros. [this is the schiff scenario.]

Jim Nickerson
09-30-06, 08:50 PM
I've been a bit discouraged by the fall off in oil prices with regard to some of my investments, but less stressed when seeing the current price of gasoline at the pumps--today 2.05 Bonars for regular at Sams Club--however, we don't really drive than much.

Jim Puplava today interviewed Matthew Simmons of Peak Oil fame. It is a 40 minute message, and though I did not think I wanted to spend that much time listening to it, it was interesting right up to the end. Further it encouraged me that oil is not likely to stay "cheap," and for that matter convinced me that for the long run regarding solving the energy dilemma, higher prices are more likely to force finding solutions.

Simmons thinks in 12-18 months discussion of peak oil will surpass those of global warning, and the 2008 election will be dominated by candidates' positions on lack of energy and their proposals to deal with it--that should be interesting.

http://www.netcastdaily.com/fsnewshour.htm Look in the middle column at 2nd Hour Guest and choose your favorite player.

This discussion was very thought provoking for me and worth my 40 minutes.

PeterM
10-02-06, 08:42 PM
It is always interesting to read an economic article on a subject that you are more familiar with.

Some claims appear correct to me, but there is also a multitude of verifyable errors and omissions. He does not mention the importance of energy eficiency ratios of alternatives, required retooling of energy infrastructure, and the lack of some essential raw materials which make some alternatives non-feasible for world wide use.

I was about to write a more detailed reaction, but I saw the article has been discussed on the oil drum.

I would expect oil to drop is case of a recesssion. Also some new supply will come on line. However I am not even sure how that works out, as a most depends on the demand side from China.
And on the short term the Iran issue may surface the next weeks putting geopolitical premium in the price.

Unfortunately, all these issues are probably just noise on the long term march towards an energy crunch.


I suggest you to read http://uk.theoildrum.com/story/2006/9/26/83859/4656#more discussing this story
and then do some further digging on the main site
http://www.theoildrum.com/

It is one of the more trustworthy oil sites with mostly sound minded people trying to anti-spin both the oil industry and the peak-oil stories.

Tet
01-03-07, 08:08 PM
I think 2007 will bring about much lower crude prices. Russia is set to increase exports by 70% to China this year and this crude will not be tranacting in d0llars or traded on the Wall Street Bourse or the London Bourse. Wall Street and London will have to compete against this and the only way I can think of besides a war would be to lower the price of crude.

jk
01-03-07, 08:33 PM
I think 2007 will bring about much lower crude prices. Russia is set to increase exports by 70% to China this year and this crude will not be tranacting in d0llars or traded on the Wall Street Bourse or the London Bourse. Wall Street and London will have to compete against this and the only way I can think of besides a war would be to lower the price of crude.

i'd like to know more - do you have some references to point to for further reading on this? it has been my impression that the russian oil industry doesn't have the ability to ramp up production in a significant way, but that's only an impression. i had also thought there were problems about financing whenever there was talk of a russian pipeline to china- neither party wanted to front the funds for the necessary pipeline. that was why the russians instead were talking about a pipeline to the pacific for trans-shipment to japan -- the japanese were willing to put up the financing. but this information is dated, and there may well have been further developments.

the big issue, though, is production capacity. if a big producer can/will indeed significantly increase production, that will lower prices irrespective of where it is sold or in what currency. so are you talking about significantly increased russian production? and where can we find out the details?

Tet
01-03-07, 11:01 PM
I screwed up and just lost my reply, I'll need to get used to the forum's features, I'll give it another go.

i'd like to know more - do you have some references to point to for further reading on this? it has been my impression that the russian oil industry doesn't have the ability to ramp up production in a significant way, but that's only an impression. i had also thought there were problems about financing whenever there was talk of a russian pipeline to china- neither party wanted to front the funds for the necessary pipeline. that was why the russians instead were talking about a pipeline to the pacific for trans-shipment to japan -- the japanese were willing to put up the financing. but this information is dated, and there may well have been further developments.
This is a subject I've been following for the last four years. One of the better sources of information is F. William Engdahl.
http://www.engdahl.oilgeopolitics.net/Geopolitics___Eurasia/Russian_Giant/russian_giant.html

Russia just bought controlling interest in Sakhalin-2, what's important to note is that BP and Shell set this project up to close down three months out of the year due to winter. There is no technical reason for this, Russia gets a 25% production increase with no addtional capital.
http://www.moscowtimes.ru/stories/2006/12/29/042.html

I can't find the article about Russian oil and gas exports increasing by 70% to China next year, but I'll keep looking. Keep in mind oil exports to China aren't huge currently so a 70% increase will be significant but not unattainable. China has already opened two Energy Bourses and Russia is in the process of opening up their own Bourse to handle the volume.



the big issue, though, is production capacity. if a big producer can/will indeed significantly increase production, that will lower prices irrespective of where it is sold or in what currency. so are you talking about significantly increased russian production? and where can we find out the details?
Keep in mind, the US, Russia and China are engaged in an economic war, both sides practice deceit to attain their goals. You'd mentioned that you thought Russian oil and gas was flowing to Japan, that clearly is no longer the case. You mentioned you thought there were financing issues, keep in mind Russia has almost $300 billion in foreign reserves and China has much more than that. Russian capacity is limited to the distribution of the oil and gas to China, not by a lack of oil and gas. Pipelines have been in the works now for over four years and both Russia and China have been working round the clock 24/7/365 to complete this project as fast as possible. 2007 much of this hard work pays off and its guaranteed not to sell in d0llars.

Now the question to ask is where else can the Federal Reserve stop the flow of oil? 2 million barrels per day stopped in Iraq, 500K stopped in Nigeria, OPEC has lowered production by a million barrels with another 500K scheduled for this quarter and Katrina stopped about 300K barrels per day out of the Gulf. Where else can Wall Street and London lower production to keep the prices high? I don't see it anywhere, certainly not Iran, Iran can shoot back.

Tet
01-08-07, 11:56 PM
the big issue, though, is production capacity. if a big producer can/will indeed significantly increase production, that will lower prices irrespective of where it is sold or in what currency. so are you talking about significantly increased russian production? and where can we find out the details?

The BIG issue right now is the chart says the price of crude is going to drop like a rock, which it pretty much has done since August.

[img=http://img223.imageshack.us/img223/8311/wticjk6.th.png] (http://img223.imageshack.us/my.php?image=wticjk6.png)

Tet
01-09-07, 11:36 AM
Crude off 2.5% so far this morning, chart looks like another 10% haircut is in order. Now let's see, if Uncle Buck buys more crude, does that mean we're going to see a stronger d0llar or a weaker d0llar? I'd say Uncle Buck buys 10% more crude and that means Uncle Buck hits 87 on the index but what do I know.

Jim Nickerson
01-09-07, 01:14 PM
I don't know if this belongs here, but I will put it up and see what happens.

I live in TX and the default electricity supplier was TXU until a couple years back, when service was deregulated. I chose Reliant Energy that promised to beat TXU's rates by a penny a KWH. Recently Reliant has promoted a deal in which one can lock-in a rate of 13.9 cents/kwh for the year 2007. If one lock-in one gets a $50 rebate off the first bill after one jumps through the hoops in submitting a rebate coupon, and if one cancels the contract, one owes Reliant a $100.

Because I love my computer and spreadsheet I have tracked the increases in costs of electricity since 2003, and the increased cost for the past year on a month-to-previous-2003-month basis shows the rates have increased anywhere from 51% to 83% for various months or for the whole year 2006 the increase was 63% more expensive /kwh than 2003.

I don't think any of these companies have any great concern when it comes to doing their customers favors, and the question arose for me as to why would Reliant allow customers to lock-in a rate, that in fact is lower than the average for the past year?

It occurred to me that Reliant is making some sort of a hedge that energy costs to produce electricity are to/may go down over the next year. If it locks in subscribers now at the lower rate, which next year Reliant may suppose will be higher, then Reliant is attempting to lock in what will be owed it from those who take the deal. If deflation or whatever is significant disinflation occurs, these locked in customers will help Reliant's bottom line.

Does that make any sense to anyone, or does anyone see other motives that seemingly make Reliant so concerned about us customers' welfares?

Tet
01-09-07, 01:20 PM
I thought GM's offer to guarantee $2 unleaded was of a similar scheme, I notice that wholesale unleaded has been under $2 ever since, I wonder what kind of a deal GM worked out.

Jim Nickerson
01-09-07, 03:10 PM
I thought GM's offer to guarantee $2 unleaded was of a similar scheme, I notice that wholesale unleaded has been under $2 ever since, I wonder what kind of a deal GM worked out.

I don't see where the GM instance is similar to what Reliant is doing. GM was trying to incentivize car sales. Reliant doesn't need to incentivize electricity sales.

Tet
01-09-07, 04:09 PM
The point being I don't believe either company lost any money on their proposal, assuming a company as large as GM can purchase wholesale unleaded as opposed to retail. At the time GM made the announcement oil and gas prices looked like they were going to skyrocket, I think both GM and Reliant knew something the average person didn't know and that was energy prices overall were heading lower.

Jim Nickerson
01-09-07, 04:53 PM
The point being I don't believe either company lost any money on their proposal, assuming a company as large as GM can purchase wholesale unleaded as opposed to retail. At the time GM made the announcement oil and gas prices looked like they were going to skyrocket, I think both GM and Reliant knew something the average person didn't know and that was energy prices overall were heading lower.

Thanks, Tet, now that is the type answer with which I can deal. And if your opinion were to be correct, it would suggest Reliant either knows or thinks it knows energy is going to be cheaper, and if you believe in the science of bonar relativity, it would be another reason the bonar could be going higher.

Anybody see this differently?

jk
01-09-07, 09:00 PM
Anybody see this differently?

reliant may just have the opportunity to lock in some product from a generator. if they lock in the consumers then they lock in the spread. the fact that they offer such a product does not necessarily mean they have any special opinion about future energy costs.

i know a local oil dealer in the northeast. over the summer he offers a locked in rate for the coming winter which he hedges in the futures market at a known cost. a certain segment of his customers are happy to be able to fix a cost; he is happy to be able to fix a profit. the future course of oil prices have no impact on those profits.

Jim Nickerson
01-09-07, 10:59 PM
reliant may just have the opportunity to lock in some product from a generator. if they lock in the consumers then they lock in the spread. the fact that they offer such a product does not necessarily mean they have any special opinion about future energy costs.

i know a local oil dealer in the northeast. over the summer he offers a locked in rate for the coming winter which he hedges in the futures market at a known cost. a certain segment of his customers are happy to be able to fix a cost; he is happy to be able to fix a profit. the future course of oil prices have no impact on those profits.

jk, you demonstate the value of dscussion, Thanks.

Tet
01-11-07, 02:30 PM
Dino Goo off another 3% today, broke through $53 like $53 wasn't even there which is what the chart above called for. The $ is up over 85 and could use a little more help from crude to break through this resistance level.

jk
01-11-07, 03:42 PM
oil is down because of peace breaking out in the middle east.

Pervilis Spurius
01-11-07, 03:55 PM
Russia appears to be pumping furiously and I would speculate Iran is cheating on OPEC calls for cuts.

Tet
01-11-07, 04:34 PM
Russia appears to be pumping furiously and I would speculate Iran is cheating on OPEC calls for cuts.
Interesting article here.http://biz.yahoo.com/seekingalpha/070111/23936_id.html?.v=1
What's Really Behind The Latest Crash in Crude Oil?

Don't agree with all of the article, but it certainly shows Russian production taking off. Iran and Venezuela breaking OPEC production cuts certainly helps Russia as well here.