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Thread summary:

Oil decline indicative of recession: world economic growth, debt capacity, return on investment

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Old 12-20-2008, 03:15 PM
 
Location: Los Angeles, Ca
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A few other points (about contrarian thinking and where the experts think things are going)

-"The New Economics of Oil" (cover story), Business Week, Nov 1997.

Technology is cutting the cost of finding, producing and refining oil. Better deep water drilling. More foreign capital in Venezuala, Algeria, Iran, etc.

"The supply curve for oil is being pushed steadily outward, thanks to technology". This is the consenus thinking.

This was when oil was $18-20. Then oil collapsed further in '98, that was the tail end of the commodity bull market. Then it went into a bull market for 10 years.

-Then the flip side. "Why you should worry about big oil". Business Week May 2006. Right at the peak of about $75 oil.

Now the main arguement is, it's getting difficult for the big oil companies to provide the energy we all need. Due in part to "huge technical challenges, competition from national oil companies, and demanding, even hostile foreign governments. Just look at events in Bolivia on May 1, when the government abruptly nationalized the nation's gas fields."

This is when we were all suppose to be scared of big oil, oil profits, consumer price gouging. It's funny how the story can change on a dime.

Oil went from $70-75, dropped a bit to $55-60. Then you had this speculative/leveraged run up to $140. And now back to $30/40.
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Old 12-20-2008, 05:48 PM
 
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Originally Posted by John23 View Post
I don't know the oil market specifically. But it seems amazing that a commodity only 6 months ago, that everyone thought was going to $200 would collapse to $30/$40 so quickly.
I guess it seems a bit odd in what I think the Econ term is Price-Demand Inelasticity. Means that if the supply goes over demand maybe just 1%, the price can drop 10%, and the same on shortage and upside -- a 1% demand increase can cause a 10% price increase. That would be for a price inelasticity of .1. Does not work that way in many other commodities, where you can use substitutes. I tend to think the ratio (1:10) for oil may be understated, but those are commonly accepted numbers.

Quote:
-In reference to the 70's, oil went up even though the US economy was terrible.
And in the 80's went down even though the US economy was better.

So I would think we could divorce the thinking that this is much more than a demand-supply driven thing. Economy up or down does not drive it, although it may tend to help drive the Economy up or down.

Whatever reduces demand can reduce price. Whatever increases demand can increase price. Whatever reduces supply can increase price. And finally whatever increases supply can reduce the price.

Guess that covers it all directions, and then factor in that it is traded on the Futures Market with around 10X to 20X more paper than real world product, and so we have dramatic over and undershoots.

Quote:

In the next 10 years, say the US economy is much worst in terms of growth, gdp, and oil demand/consumption. The worst decade for us since the 30's. It seems like the rest of the worlds economic growth would more than offset that to keep oil demand and consumption high. China, Asia, East Asia weren't in the game in the 70's the way they are now. It's hard to see a scenario that keeps global consumption down for so long, that oil never goes up again.
It is heading towards a World Wide depression. Demand should be down everywhere. Although we are largest consumer of energy, we only take 25% (or so). It is not all about US, we are just the biggest player.

Quote:

-It's going to take a long time for us and the world to reduce our oil consumption. Alternative energy, battery powered cars, etc, they've been talked about, discussed, and promoted for a long time. But they've made a small dent in our everyday lives. What we're doing now is unsustainable, but we keep doing it.
The reduction in use only has to be faster than the drop in production. If we played it smart we could lead the race to Power Down all the way down, and live in surplus the whole way.

Quote:

Eventually we're bound to get in a shooting war/WWIII fighting over scare oil (scare resources).
Dunno if you have ever studied Shell Oil's Scenario planning -- it was the Genesis of a book I recommended for Chet on here a little while ago >>>

Amazon.com: The Art of the Long View: Planning for the Future in an Uncertain World: Peter Schwartz: Books

Shell still does the Scenario Planning, here is this year's edition >>>

Shell chief fears oil shortage in seven years - Times Online

They figured that by 2015 we would either be on a Path called "Blueprints" -- an intelligent and workable plan to all Power Down and shift off of oil, or another Path called "Scramble" complete with the resource wars you are discussing.

Quote:

The price could stay down for quite a while, 3 months, 6 months, 3 years. You could play USO or DBC, the etfs. The risk/rewards looks very tempting. Especially versus stocks (spx), when/if the economy rebounds.
Might, might not, from my POV, who cares?

I do not plan to be burning when it goes shortage and would highly encourage others to do the same.
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Old 12-21-2008, 04:54 PM
 
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The price changes the last year or two have been incredible. The way the price has plummeted so much and so fast - maybe it's a good sign for the future? I'm very ignorant, but I wonder if this is a sign that the world's oil consumption demand is *very responsive* to price changes and changes in the economy now, rather than the price remaining high. A "good sign" because of the potential ability of the economy to adjust to peak oil.

Too bad I can't log on Amazon and buy some barrels of oil, shipped to my house. I don't know anything, but I'd be really surprised if the price isn't at least doubled five years from now. If anything, maybe it would be a good inflation hedge, while Helicopter Ben applies his supply side economic theories.
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Old 12-24-2008, 10:31 PM
 
Location: Somewhere out there
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Do the oil barrel prices have an affect on LP gas supplies?
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Old 12-24-2008, 11:20 PM
 
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right now it is the buying opportunity of a lifetime. make sure you buy producers that have a stock price that is closely linked to the price of a barrel of oil though. Some of these companies get bid up very high because there is a lot of speculation that price of oil will go up. Once it starts going up, the stock price barely moves.
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Old 12-26-2008, 03:43 PM
 
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Some thoughts:
(a) Recoverable oil reserves are a function of price and technology. Higher price makes Canadian shales look good even though they have high extraction costs. This is important to bear in mind.

(b) given that it is not easy to wean off oil, and that demand in developing countries (termed "frightening" by Saudi King after his visit to China and India), we need to worry about the spare incremental capacity. This spare incremental capacity is not built quickly or cheaply. Once the world economy picks up, oil will rise - probably quite significantly. Throw in a politcal disturbance or a war in the right country, some speculation, and we will wish we worked in the oil industry.

(c) speaking of oil industry, the majors are increasingly become irrelevent - 70% of the oil reserves are now controlled by national oil companies. The Xons may be able to provide technology but producers like Russia /Venezuela et al are feeling cocky and are not "co-operating". MidEast is a different ballgame since they also need our guns to stay in power.

(d) There is a growing belief among geologists that "peak oil" theory is bunk (http://policy.heritageblogs.org/2006...l_is_bunk.html) . We always seem to have 20-30 yrs supply on hand. Remember, we have not started drilling deep (far from shore) in the oceans (2/3rds of earth's surface) yet - leaving most reserves untapped. If there is demand, prices will go higher and suddenly we will have more revoverable reserves by going even further offshore. I doubt we will run out of oil for at least 100 yrs. Before the economy slowed, we were approaching peak production capacity, not peak reserves.

If I were a gambling man, I would bet oil will be lot higher ($70??) 3-4 years from now. The worldwide supply/demand drives oil price (speculation etc are short lived) and the demand is headed up once economy accelerates. OTOH, experts who follow oil prices (justifiably) laugh at people who think they have a handle on price - it is very tough to do.

Last edited by calmdude; 12-26-2008 at 04:58 PM.. Reason: edit: added link
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Old 12-26-2008, 04:20 PM
 
Location: Keller, TX
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Financial Sense -- The Coming Oil Train Wreck


Quote:
Current global oil production is 72 million barrels per day. According to Simmons, if the world spends a fortune (many trillions) trying to mitigate the depletion rate, it is estimated global production will fall to 25 million barrels per day by 2030. Without the mitigation, world production will plunge to 9 million barrels per day.

Simmons has stated that we need to find “four new Saudi Arabia’s” just to keep global production flat in the coming decades.
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Old 12-26-2008, 05:55 PM
 
Location: Los Angeles, Ca
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Originally Posted by calmdude View Post
The worldwide supply/demand drives oil price (speculation etc are short lived) and the demand is headed up once economy accelerates. OTOH, experts who follow oil prices (justifiably) laugh at people who think they have a handle on price - it is very tough to do.
That's the tough part. Long term supply/demands points to higher prices (potentially much higher). Short term, it could stay at $20-30 for 2 years.

Dxo or calls on an etf like uso (january 11's?). But we might wait awhile.
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Old 12-26-2008, 09:51 PM
 
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Quote:
Originally Posted by John23 View Post
That's the tough part. Long term supply/demands points to higher prices (potentially much higher). Short term, it could stay at $20-30 for 2 years.

Dxo or calls on an etf like uso (january 11's?). But we might wait awhile.
Exactly! Megatrends are easy to predict. Over very long term, stocks will go up - but wish I knew where the SP500 will be a year from now.
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Old 12-27-2008, 02:12 PM
 
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I agree ;once the economies in the world start going up there will be the same rush for energy that drive the economy. What we are seeing now is low demand brought on by lowering econmic demand. Offshore driling has a hard time costwise comnpared to land based saudi crude.There hasn't been a large fiekld like the Saudi field found in 35 years. Its like comparing the atlantic ocean to a lake really.Ohterwsie their would be little investrmant in sand tars in Canada or even anyone thinking shell oil at all.
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