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"As night follows day, low oil prices have always followed high prices, and the decline has always been swifter than the advance," said Peter Beutel, an oil analyst at Cameron Hanover.
Beutel sees a 2009 low of around $50 or $60 a barrel, then even lower prices in 2010.
"I'm not going to rule out some extraordinarily low numbers, even $20 a barrel," he said, acknowledging that five months ago many respectable analysts though we'd never go below $100. "Whatever the market does, it's going to make us all look like fools."
Deutsche Bank compared oil prices to several other measures, and came to the conclusion that "crude oil is the most richly priced commodity currently."
Compared to crude's historic price average of $35 a barrel, it's currently 100% higher, higher than any other commodity. The next highest is gold, at 56%. Many other metals are only 20 to 30% higher.
...unless you subscribe to Peak Oil theory, which more and more petroleum engineers recently have. For the long term, I believe we've entered a paradigm where the lack of significant new discoveries, declining exports due to developing nations needing more of their own oil, and geopolitical risks with potential supply disruptions, all resulting in minimal supply surpluses and elevated crude prices. Sure, we'll see some less expensive gas for a little while during this correction, but most analysts agree that it will be expensive long term. World oil production peaked in June '05, and has been an undulating plateau since.
Want cheap energy? Look in the rear view mirror.
For the long term, I believe we've entered a paradigm where the lack of significant new discoveries, declining exports due to developing nations needing more of their own oil, and geopolitical risks with potential supply disruptions, all resulting in minimal supply surpluses and elevated crude prices. Sure, we'll see some less expensive gas for a little while during this correction, but most analysts agree that it will be expensive long term.
I agree with you on the long term outlook, but six months of cheap energy in the short term can cause a domino effect that could destroy a good chunk of Colorado's economy. The people who moved to the western slope for the energy industry and bought houses will have to leave, and the people who are charging obscene rents to the ones who didn't buy will lose their renters. All of the suppliers who make their living selling to the energy companies will also take a hit, and the towns/cities/counties that borrowed money to provide more services to the energy boomers (schools, roads, etc.) could face a crumbling tax base.
Or not.....
Maybe peak oil will always keep us warm and snug in our beds at night knowing that Colorado will never, ever get wiped out by an energy bust.
FormerlyDownSouthJukin'BobNowFromCS, the long bond yields have risen due to investors unloading their long bonds. Bond traders know that a TON of new Treasury supply is gonna hafta be coming down the pipeline soon (The annual budget deficit is expected to top $2 trillion, which has gotta be a US record, right?). So many Treasury issues are gonna be hittin' the market that yields are sure to rise significantly. Better to sell your long bonds now and buy back into the market when they are much, much cheaper. Bond trading rules: If you think yields will drop, start buying. If you thing yields will rise, start selling.
The traditional move when equities are moving down hard is to cash out and put the proceeds into bonds or the money market, driving bond and/or MM yields way down.
All that money flowing from the equities into the bond or money markets should be easing things up in the credit markets and/or driving treasury yields way down...but it's not.
There is other empirical evidence of capital flight, like the Kuwait SWF looking to repatriate $15Bn to pump into its own system.
At any rate, the long bond heading north as a result of all this deficit spending sure looks like it is going to administer the coup de grace to what's left of the housing market as we know it.
I agree with you on the long term outlook, but six months of cheap energy in the short term can cause a domino effect that could destroy a good chunk of Colorado's economy. The people who moved to the western slope for the energy industry and bought houses will have to leave, and the people who are charging obscene rents to the ones who didn't buy will lose their renters. All of the suppliers who make their living selling to the energy companies will also take a hit, and the towns/cities/counties that borrowed money to provide more services to the energy boomers (schools, roads, etc.) could face a crumbling tax base.
Or not.....
Maybe peak oil will always keep us warm and snug in our beds at night knowing that Colorado will never, ever get wiped out by an energy bust.
I'll opt for the "or not" scenario. Commodity prices may be declining, but the population is NOT declining, and they are still going to want to heat and cook with gas, and drive a car. When that new pipeline (The Rockies Express) is fully completed in DEC 2009 and starts shipping prodigious amounts of CO/WY natural gas to eastern markets, it will put a very strong support under the oil and gas industry here. See: Rockies Express Pipeline (http://www.rexpipeline.com/index.html - broken link)
When T. Boone Pickens gets his plan rolling to fuel cars with natural gas, it could lead to an even bigger boom in natural gas. That's why I want the Severance Tax to go up, and it will, if we vote YES on ballot item 58. Most of that oil and gas will be going out of state, no sense for we CO taxpayers to subsidize out of state consumption with our tax dollars, let the out of state consumers pay fair market prices for these commodities.
Projections I saw months ago while investigating investments in this area were that we'll be importing natural gas for quite a while. In addition to what is working here, the nation needs that big gas pipeline from Alaska.
I agree with you on the long term outlook, but six months of cheap energy in the short term can cause a domino effect that could destroy a good chunk of Colorado's economy. The people who moved to the western slope for the energy industry and bought houses will have to leave, and the people who are charging obscene rents to the ones who didn't buy will lose their renters. All of the suppliers who make their living selling to the energy companies will also take a hit, and the towns/cities/counties that borrowed money to provide more services to the energy boomers (schools, roads, etc.) could face a crumbling tax base.
I agree (at least w/r/t oil)...that was sort of the gist of my previous comment about the effects of demand destruction on pricing. If demand falls hard enough to pull production back significantly from the ceiling, then prices could fall enough to where (absent some gov't subsidy to continue) development gets shelved, and those involved get shelved along with it. There's talk of OPEC intervention to reduce production, but when prices fall dramatically, those guys have a long history of agreeing and then running home and opening up the spigot as wide as they can anyway. The only way they can keep up revenues is to keep pumping.
The oil bust of the 80s is a perfect case in point...there were houses, boats, sports cars, and RVs selling at 50-75% below blue book in Texas and Oklahoma when the bottom fell out.
When T. Boone Pickens gets his plan rolling to fuel cars with natural gas, it could lead to an even bigger boom in natural gas. That's why I want the Severance Tax to go up, and it will, if we vote YES on ballot item 58. Most of that oil and gas will be going out of state, no sense for we CO taxpayers to subsidize out of state consumption with our tax dollars, let the out of state consumers pay fair market prices for these commodities.
Unfortunately, I think if gas goes back to the mid $2 range, a year from now people will be saying "T. Boone who??"
I'll opt for the "or not" scenario. Commodity prices may be declining, but the population is NOT declining, and they are still going to want to heat and cook with gas, and drive a car. When that new pipeline (The Rockies Express) is fully completed in DEC 2009 and starts shipping prodigious amounts of CO/WY natural gas to eastern markets, it will put a very strong support under the oil and gas industry here. See: Rockies Express Pipeline (http://www.rexpipeline.com/index.html - broken link)
The gas will help, but you also have to realize that once the pipeline is up and running, it will be part of the problem. Those workers won't be needed any more.
Another factor is that businesses are slowing down, which cuts the need for electricity, and power plants are a major user of the natural gas that will be going through the pipeline. Manufacturing takes a TON of electricity, and it looks like things will be slow in that sector for a while.
One thing that will help natural gas demand is that a lot of older houses in the midwest are switching from oil to gas heat. Conversely, if oil keeps dropping in relation to natural gas, those furnaces won't be switched out, and it could actually hurt the demand until the oil prices go back up.
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When T. Boone Pickens gets his plan rolling to fuel cars with natural gas, it could lead to an even bigger boom in natural gas. That's why I want the Severance Tax to go up, and it will, if we vote YES on ballot item 58. Most of that oil and gas will be going out of state, no sense for we CO taxpayers to subsidize out of state consumption with our tax dollars, let the out of state consumers pay fair market prices for these commodities.
T. Boone Pickens plan is still a pipe dream. With oil getting cheaper in the short term, people aren't going to be willing to switch to CNG cars without tax breaks or other big incentives. We're also starting to get some decent diesels here, which will further limit the development of CNG. Getting nearly 60MPG out of the new VWs is enough to keep us happily addicted to oil.
Pickens' involvement could still increase the amount of natural gas used, but probably not in the way he says. Because wind power is so variable, backup generation must be available, and natural gas is the only fuel which can fire up fast enough to meet demand. Building a lot of wind turbines will cut back on the number of coal plants, and could actually increase natural gas usage for power generation.
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Projections I saw months ago while investigating investments in this area were that we'll be importing natural gas for quite a while. In addition to what is working here, the nation needs that big gas pipeline from Alaska.
In some ways, this works against us. Natural gas is a commodity, and if its cheaper to import the stuff, somebody will do it.
Another problem is that when big oil/gas has low revenues, they have to cut some spending to stay profitable for the stockholders. Want to guess where they'll cut it?
Last edited by sterlinggirl; 10-11-2008 at 08:20 PM..
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