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Thread summary:

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

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Old 12-19-2008, 03:43 PM
 
Location: Los Angeles, Ca
2,884 posts, read 5,289,918 times
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Is anyone else suprised at this oil decline? From $147 in July to $33.87 today for the january contract?

A.) If we're going to be in a long recession/depression, I guess oil could stay down for a long time. But even in rough economies (i.e. the 70's), oil went up. Supply can fall faster than demand.

B.) If world economic growth comes back, surely it'll go back over $60, $80 or $100. Or if you believe we're still in a commodity bull market. You mean Asia isn't going to consume any oil in the future?

C.) At some point, it gets unproductive to drill/explore. I dont know the numbers. But we're getting closer to that if we aren't already there.

What happened to peak oil?

I don't know...it seems like a sure bet, in 3 or 5 years. And better risk/reward than stocks when/if the world economy comes back. Thoughts, analysis?
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Old 12-19-2008, 04:18 PM
 
5,090 posts, read 10,041,160 times
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Hi John23,

jmho, but it looks like you are all over the map on this.

But covering your list >>>

A) This is NOT the 1970s. During the 70s the US went peak. As Texas was a leading producer at the time, this is easily tracked. We have very good production data to show what happened on a year by year basis here >>>

Oil Production and Well Counts (1935-2007)

If you look at that table, 1972 was the peak year for Texas. That table covers some 70 years. Now we are back down to 1930's production levels with 4 times as many wells.

In the 70's the US (and to a lesser degree the world) had a capacity for debt. Debt was pretty much the path out of the 70's -- the Miracle of Reaganomics. By the 1980's the combination of reduced demand from conservation and the CAFE ratings, along with new discovery outside the US mainland drove the market into glut.

B) You may or may not be making some valid or invalid conclusions -- based on what is not clear.

If the US stays stuck on oil, we and world are stuck. We are by far the largest consumers, so if we go off oil, everything could coast along fine. If we stay on keep trying to suck as much production may become, the world will likely go to a real shooting war.

C) The ROI (return on investment) drives everything. Some areas such as Saudi can pump below $20 and maybe towards the single digits. Some areas such as the Tar Sands in Canada are rumored to be over $50 to $60. Just about everyone else is somewhere between. Just as too high a price will eventually stop a buyer, too low will eventually stop most producers.

What happened to Peak Oil? ) Still there. Still here. Just like that Table of Texas Oil Production. Looks like Worldwide Production Peak for Oil may have been 2005 to 2007. It will take a few years to be able to look back and see.

As far as "investing" in Oil -- do you mean like Futures? again, jmho, but I would stay away from that unless you are somehow related to that business -- e.g. Oil producer or sales, or maybe an Airline that consumes a lot and needs stable prices. Other than that it is not really investing, is it? More like speculation. Does not seem like a smart game.
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Old 12-19-2008, 04:33 PM
 
Location: Keller, TX
5,670 posts, read 5,369,380 times
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Oil had some crazy little spikes today. I saw the contract price go from $33.80 to $37 within a few minutes on CNBC.

I'm pretty surprised that with the interest rate slash and subsequent drop in the dollar, plus the announcement of the biggest cut in OPEC's history, that oil fell like it did. USO, an oil ETF (not leveraged) was above $40 Monday morning and dropped below $32 today. 20% drop in a week when those two little items occurred is significant.

I'm one of those who thinks the dollar will be weak and the commodities will be strong. Therefore UDN, USO, and GLD.

How much lower and when? No idea. We could see $45 next week or we could see $28 next week. But I think we'll see $75 (OPEC's goal) by mid 2010. Is 120% in 18 months a good deal? Some think we'll see a $2000 spot price for gold by December 2009, so is 144% in 12 months a better deal? Maybe DBC is the right play -- a commodities index ETF about half in crude, a quarter in gold, and a quarter in agriculture.
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Old 12-19-2008, 05:31 PM
 
Location: Sitting on a bar stool. Guinness in hand.
4,429 posts, read 5,805,562 times
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[quote=Philip T;6635547]Hi John23,


B) You may or may not be making some valid or invalid conclusions -- based on what is not clear.

If the US stays stuck on oil, we and world are stuck. We are by far the largest consumers, so if we go off oil, everything could coast along fine. If we stay on keep trying to suck as much production may become, the world will likely go to a real shooting war.
QUOTE]

Agreed. That why I want to see full steam ahead on fully battery/electric vehicles. If we actually have the resolve as a nation to dump the internal combustion engine. We could in real have a lot of positive outcomes for issues of Energy Independence, National security, and the Environment. In my opinion we need to do what every it takes to change ourselves over to electrics vehicles within 15 year. I think 15 years is more than a fair number to throw out there.
Look whether it through tax incentives to build the cars, low cost or zero interest loan to electric entrepreneurs, Tough almost impossible to meet CAFE standards for the current car industry, Major public works projects that help to support the fueling of electric vehicles (this would have to happen.) Whether it done by any of these or some other type of assistance/motivation I haven't mention. IT NEEDS TO BE DONE! And it must be done rather quickly so that we are not behind the 8 ball when oil does finally start to dry up. The game is over that we have played with oil for the last century is over kids. It time to move on and start something new.

Quote:
Originally Posted by Nepenthe View Post
Oil had some crazy little spikes today. I saw the contract price go from $33.80 to $37 within a few minutes on CNBC.

I'm pretty surprised that with the interest rate slash and subsequent drop in the dollar, plus the announcement of the biggest cut in OPEC's history, that oil fell like it did. USO, an oil ETF (not leveraged) was above $40 Monday morning and dropped below $32 today. 20% drop in a week when those two little items occurred is significant.

I'm one of those who thinks the dollar will be weak and the commodities will be strong. Therefore UDN, USO, and GLD.

How much lower and when? No idea. We could see $45 next week or we could see $28 next week. But I think we'll see $75 (OPEC's goal) by mid 2010. Is 120% in 18 months a good deal? Some think we'll see a $2000 spot price for gold by December 2009, so is 144% in 12 months a better deal? Maybe DBC is the right play -- a commodities index ETF about half in crude, a quarter in gold, and a quarter in agriculture.
This oil roller coaster just proves how far from fundamentals most investors have come when it comes to commidites......well actually in investments in general. People have just plainly lost there minds and are run like sheep to the next big thing. All the while they are actually setting themselves up for failure. It nuts. Period.
Now I do agree with you though that oil will be $75 a barrel again but I see it happening a bit sooner than you. I guesstimating that oil will hit $75 by this time next year perhaps slightly sooner. I basing that on the other days cut from production and probable future cuts and a bit of a pick up in oil use even in this down economy.
As for gold. No Idea dude. Also think agriculture will do well in the coming year. Exact numbers.......Again no ideas.
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Old 12-19-2008, 07:19 PM
 
Location: where you sip the tea of the breasts of the spinsters of Utica
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Oil will be up some because of the OPEC cut in production, but not that much. Businesses are the biggest consumers of oil energies, and they're reducing demand, tightening their belts, and even failing altogether. Individuals also will be reducing demand because of rising unemployment.

Peak Oil won't happen as quickly as predicted in the past, when they probably assumed increasing demand from industry and developing nations.
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Old 12-19-2008, 07:24 PM
 
Location: WA
5,471 posts, read 21,903,839 times
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The current low price is for the current contract as demand has rapidly dropped leaving few taking immediate delivery and limited storage capacity. The spread to later month contracts is over $10. Gasoline prices have dropped so rapidly that refining is quite unprofitable at current prices so refineries are reducing runs, buying less crude.

At this price there will be no new exploration or big new capital expenditures put into production. Oil production will be choked off and supplies reduced until prices go up. I would guess the PPB needs to be in the $70 range with a sustainable outlook before the markets go back to normal.
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Old 12-20-2008, 08:01 AM
 
Location: Visitation between Wal-Mart & Home Depot
8,308 posts, read 35,229,211 times
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Quote:
Originally Posted by John23 View Post
Is anyone else suprised at this oil decline? From $147 in July to $33.87 today for the january contract?

A.) If we're going to be in a long recession/depression, I guess oil could stay down for a long time. But even in rough economies (i.e. the 70's), oil went up. Supply can fall faster than demand.

B.) If world economic growth comes back, surely it'll go back over $60, $80 or $100. Or if you believe we're still in a commodity bull market. You mean Asia isn't going to consume any oil in the future?

C.) At some point, it gets unproductive to drill/explore. I dont know the numbers. But we're getting closer to that if we aren't already there.

What happened to peak oil?

I don't know...it seems like a sure bet, in 3 or 5 years. And better risk/reward than stocks when/if the world economy comes back. Thoughts, analysis?
Commodities will be the first thing to take off when the economy starts to rebound. Even if oil stays down oil producers will be able to stay solvent when inflated drilling and service costs start to come back down to earth. In that case, look for drilling stocks and service companies to take a hit while E&P's start to climb.

I tend to agree with the World Bank forecast of $70 oil in 2010.
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Old 12-20-2008, 10:11 AM
 
Location: Los Angeles Area
3,306 posts, read 3,555,115 times
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I think I'm going to dig a hole in my background and fill it with oil. Right next to my stockpile of corn and pez.

I'm going to be rich!
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Old 12-20-2008, 10:31 AM
 
Location: Houston, TX
17,031 posts, read 27,549,629 times
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Oil prices came down much faster than they went up because the hedge and mutual funds had to liquidate assets in order to meet margin calls and cash outs when the market turned south. I think too many had way to much of oil and other commodities leveraged to far. Demand has dropped some, but I dont think we are far from $50 oil again. Too many economies of the world need oil above $40/bbl. Our Canadian friends would like it closer to $70 so their products are profitable.
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Old 12-20-2008, 02:19 PM
 
Location: Los Angeles, Ca
2,884 posts, read 5,289,918 times
Reputation: 2737
Quote:
Originally Posted by Philip T View Post
Hi John23,

jmho, but it looks like you are all over the map on this.

But covering your list >>>

A) This is NOT the 1970s. During the 70s the US went peak. As Texas was a leading producer at the time, this is easily tracked. We have very good production data to show what happened on a year by year basis here >>>

Oil Production and Well Counts (1935-2007)

If you look at that table, 1972 was the peak year for Texas. That table covers some 70 years. Now we are back down to 1930's production levels with 4 times as many wells.

In the 70's the US (and to a lesser degree the world) had a capacity for debt. Debt was pretty much the path out of the 70's -- the Miracle of Reaganomics. By the 1980's the combination of reduced demand from conservation and the CAFE ratings, along with new discovery outside the US mainland drove the market into glut.

B) You may or may not be making some valid or invalid conclusions -- based on what is not clear.

If the US stays stuck on oil, we and world are stuck. We are by far the largest consumers, so if we go off oil, everything could coast along fine. If we stay on keep trying to suck as much production may become, the world will likely go to a real shooting war.

C) The ROI (return on investment) drives everything. Some areas such as Saudi can pump below $20 and maybe towards the single digits. Some areas such as the Tar Sands in Canada are rumored to be over $50 to $60. Just about everyone else is somewhere between. Just as too high a price will eventually stop a buyer, too low will eventually stop most producers.

What happened to Peak Oil? ) Still there. Still here. Just like that Table of Texas Oil Production. Looks like Worldwide Production Peak for Oil may have been 2005 to 2007. It will take a few years to be able to look back and see.

As far as "investing" in Oil -- do you mean like Futures? again, jmho, but I would stay away from that unless you are somehow related to that business -- e.g. Oil producer or sales, or maybe an Airline that consumes a lot and needs stable prices. Other than that it is not really investing, is it? More like speculation. Does not seem like a smart game.
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.

-In reference to the 70's, oil went up even though the US economy was terrible.

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'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.

Eventually we're bound to get in a shooting war/WWIII fighting over scare oil (scare resources).

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.
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