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Bloomberg.com: Energy — When you start to see stories like this it means it will never happen and the bottom is near. It may be there now. This was exemplified by all the $200 a barrel predictions followed by a plummet. Give it a couple more weeks. Supply and demand, HAR! And never overlook the fact that oil trades at a relative $25 forever. While the experts predict eventual upward price swings, history indicates the opposite.
Oil traders made their biggest bet yet that the Organization of Petroleum Exporting Countries will fail to prevent crude prices from plunging below $30 a barrel. Trades in crude-oil options contracts that would allow the holder to sell oil for February delivery at $30 a barrel reached 1,407 on the New York Mercantile Exchange yesterday, making the contract the day’s second-most active, exchange data show.
OPEC, the supplier of about 40 percent of the world’s oil, plans to meet Nov. 29 in Cairo to discuss another output cut after crude oil touched $54.67 a barrel, a 21-month low, yesterday. The 13-member organization cut production by 1.5 million barrels a day at a meeting in Vienna last month.
“Somebody is buying a little bit of insurance with a very deep out-of-the-money put option,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “It’s very exciting to think about $30 oil, but are we going there? Most likely not.”
Wait.
Canada?!?
Yup, Canada. We’re the biggest external supplier of energy the US from Oil, Gas, Hyrdoelectric, coal fired generation, and nuclear.
$40 – $60 is reasonable. At $40 production starts tripping off. At $30 it really starts going offline automatically in a big way.
The big problem is producing reserves decline at 9% per year. With rising worldwide demand and dropping supply it’ll bounce back up eventually.
I guess that the GM Exec Mr. Lutz was correct when he said that we all will all be driving suvs
Guess these auto exec people are worth the big bonuses they are paid for running the auto industry sector so well
The best part of cheap oil is that scumbag nations like Iran and Venezuela, that count on oil for survival, are sucking major wind. Poetic justice I say.
People have started driving way faster on the highways now.
#1 Tar sands in Alberta. They have about 300 billion barrels of oil. But with prices of crude rising, production will slow down.
John: You’re really not that dumb, are you?
As long as “they” are allowed to continue the manipulation of oil prices…the point is lost on me.
We love you, Canada! (You know that, right?)
Yup, the IEA cut 2009 estimates to $80 bbl. But, they don’t listen to JCD, either.
Pardon me if I seem skeptical.
I just finished listening to John C Dvorak’s comments on TWIT 165 (recorded 1 month ago).
At 23 minutes 30 seconds, John’s prediction:
“I think that once the Presidential election is finished, that we are going to have an upswing in the market in general that will eliminate this fear, this short-term freakiness, that is out there.” (10/19/2008)
Ooops!
When they start buying and selling clean air, the way Al Gore proposes (indirectly), as a luxury commodity, that too will have an greatly inflated price. I think we’re well past the point, in the 21th century, when oil usage came be considered a luxury commodity, like tea, coffee, and bananas, that we can simply just do without it for a while. But all of our leaders and statesmen continue to defend an exploitative market of oil’s import and sales. Is there also such a market for Plutonium and Uranium? And if not (as I suspect), why the hell not?! Isn’t it a luxury commodity too? Or does fueling power plants with it, get a better deal, than oil and coal?
The problem isn’t just what that the OPEC and non-OPEC oil producing nations conspire to limit their output. But that the international trading market has jacked the price per barrel up to whatever floats their boat. And just like the real estate market in the US, it was way over valued. Not it appears to be either correcting or falling, much faster and lower, than simply could be accounted for by a little belt tightening of US drivers. I’ve also noticed that food is still pretty damn costly, in spite of falling gas prices. And yet more costly gas was the reason give for it’s increase. Well I still paid nearly $4 last week for a gallon of milk. While the gas stations up the road just dropped prices to $1.95 a gallon. Oh let me guess, winter milk costs more. Well it never did before!!
We’re being gouged, there’s little doubt about it. Gouged at the grocery stores, gouged at the pumps (before, we were), gouged at the auto dealers, gouged at the airports. It’s all been a game of “what the market can bare”, as oppose to charging a fair markup over cost. I’ve seen these little ultra-bright LED
devices at our dollar store. But the big hardware chain stores sell the very same thing for $10!! And Radio Shack sells the bulb alone for $4!! How are they justifying a five fold markup? Give me a break.
I think the oil and gasoline industry just got spooked that Hybrid and economy car sales might take off. So they’re bottoming out the price, as they’ve stored away enough profit fat, to last them a while. And they hope to smash another trend, at using less gas. If they can keep it under $2 a gallon, for most of next year, they’ll probably succeed. The US will be back to livin in SUV gas hog heaven.
I believe the oil industry jumped the shark when gas hit $4.00/gal.
We saw the prospect of our way of life going to hell in a handbasket, and we couldn’t stop it.
Lower fuel prices may slow the trend to our self-reliance, but not stop it.
Hybrids and electrics. Enough said.
I want you folks to do alittle math..
In the USA
TAX $0.70 per gallon
Much of the world(inc. Canada)
Tax is 30-50% of the price of gas.
Price of gas at $5 per gallon..
$4.30 to the GAS corp, $0.70 to TAX
Canada and OTHERS..
$2.50-$3 to the corp, $2.00-2.50 to TAX..
What is happening is that N. America is playing POKER, and BLUFFING the other nations to USE/NOT USE their oil..
THINK about the amount of money that ends up in the middle east.
THINK about the STOCK MARKET INFLATION…
The middle EAST didnt change price that much, the MARKET DID.
when the USA gov, threatens to use resources LOCAL, insted of IMPORTs.. It scares the market.
#4 gquaglia: Iran sucking wind? Um… no, they’re #3 behind Saudi and Canada. Very little refining capacity, however. Iraq is #4.
That’s what the US needs to build in Iraq: refineries. It would be some compensation, to the Iraqi people, for trashing their country. I think they are aware of this, it’s one reason Basra is so hotly-contested.
Oil could go lower than $30, just don’t invest with that assumption.
I think that the $150 a barrel was because a lot of trading companies had lost big money on derivatives. They goosed the oil market in the same way Enron did when its derivative contracts\theft went bad. California blackouts were supply and demand too, right?
Now all these companies are at the federal teat. The story is out, no reason to risk getting caught rigging the market. If caught, the public might demand that your firm NOT get that bailout.
Actually, I thought that the price of oil, earlier this year, might be the result of the speculators moving from real estate to oil. That was before the mortgage banks began to fail. The biggest speculators were probably already out of mortgages by then, and skewing the oil stock prices. The reason food prices went up. Corn’s price was traded upward, out of speculation that it was an alternative fuel. Not because people were eating more of it, or large crop failures. So everything that depends on corn, cereals, meat production, diary, etc, has become more expensive because of speculation of corn crops as a domestic bio-fuel. Yeah, it fuels people’s tummies, damn it! Stop leaching off of the food supply!
i wish they’d just stop futzin around with the oil wars and just produce closed loop magnetic/hydrogen generators and the like.
highly efficient tech for this has
been around for decades.. spend some time
doing patent searches..most interesting.
hydrogen and the fight for fresh water will be the end game..watch for activity around large aquifers..locate a few, then see who/what is buying up the land around and above them. your findings will be most intriguing.
low oil $$ right now is just a way to bankrupt
and persuade Iran and a few other oil nations that aren’t playing “nice” with the CFR’s long term goals..
-and if that’s fresh water locked up on mars
well…
-s
It’s like the dealer supplying the junkie with some freebies when the dealer heard that the junkie was entering rehab.
Under $100/barrel for oil and Canadas’ tar sands aren’t economically viable.
#22 Green
The oil sands extraction process makes money at $35-40 a barrel for the companies with established, productive operations.
It was the price of oil that broke the economy. When the price of fuel slowed the economy people on the edge couldn’t pay their loans. Then all the new houses couldn’t be sold. Then the carpenters couldn’t get jobs building so they quit buying cars. And the laid off auto workers stopped going to Disney World. And … until we ended up in the mess we are today.
Our economy is based upon oil. Until recently oil was inexpensive and a relatively good way to hold energy. To get off of oil will require replacing it with something equally transportable. Whether that is high density capacitors or batteries or liquefied natural gas or propane I can’t answer. But it won’t be $150 or $200 /bbl oil.
The real problem with these enormous price fluctuations is that neither business nor consumers know what to expect, leading everyone to make bad decisions.
One way to get rid of these fluctuations would be for the government to put a floor on the price of oil. Pick a number, $70/bbl, $100/bbl, whatever.
Then tax oil whenever the price drops below that price to keep it at that price. That would create some stability so that people would know that buying that prius really is better than buying that naggravator.
Businesses would know that buying insulation for their buildings to cut their heating costs pays.
It would take a tremendous amount of uncertainty out of the market by at least limiting some of the price swings.
Business hates uncertainty.
Consumers should hate it too. It caused people to end up filling their SUV tanks at %$4/gallon. And, if we let the price drop again for a while, it will cause the same thing again.
We the idiots will not do something just because it makes sense. It has to be the best choice for our wallets too. I have no idea why that is, but it is.
Anyone could have known (and everyone should have) that buying fuel efficient vehicles was a smart thing to do. We’ve known that since 1973. And yet …
Gee, just a few months ago everyone was predicting $200 for a barrel of oil and now it’s $30. It will decline just a hair below $50 and then begin it’s assent again toward $100 before fluctuating between those two numbers for a while. Then it will shoot up to $250 much like it went to $160 before collapsing well below the $50 mark.
I don’t claim to have a crystal ball, I use a map. It’s called history.
#25 – Mr. Fusion
Re: “It was the price of oil that broke the economy.” Are you kidding me!!?
It was GOVERNMENT forcing banks to make home loans to people who didn’t qualified that crashed the economy.
The depression was going to happen but with GOVERNMENTS’ help it will be much much much worse.
Oil prices too high = Republicans f@#king us with free market policy.
Oil prices too low = Democrats f#@king us with want to add on more taxes and not invest in national refineries and drilling.
Either way we always get f#@ked!
“Heralding a possible fresh cut in output, Naumam Barakat, of Macquarie Bank in New York, said that the latest downward revision seemed to indicate that Opec would like to withdraw another 1m b/d on top of the 1.5m b/d that the cartel cut about a month ago.
“If crude prices do not hold these price levels, the next test could be all the way down to the 2007 lows of $49.90 a barrel,” he said.” FT.com
Some say it could go back to the 100 range. The trend is down because we see the economic harm when it gets to those levels. It can’t keep enough demand at 100 to keep volume alive and the system lives off of volume.
They are talking about cutting volume now to support rising prices. I guess you could say that price fixing does not work. Killing volume to support higher prices kills prices because volume drops, so demand naturally doesn’t go higher. They need to sell more to make more. It’s like trying to keep a newspaper going by announcing that you are going to print less papers and charge more for the papers. You need to sell as much as people will buy at a price they can afford. A newspaper is 50 cents. If it was a dollar, circulation would drop. It’s dropping now and it’s dirt cheap. Oil was 140 and a paper was still 50 cents. The delivery costs created losses for the newspaper business. I guess at 50, it’s a 50-50 solution. Read the problems and prove them as originals.
On the price floor, wait for the dead cat bounce. On the artificial floor set by the government (#26 Scott), this is equivalent to the carbon tax which is supposed to encourage the sustained investment in green technologies.
It’s an interesting idea. Germany guaranteed a price for electricity so small producers could borrow the money to get into market. Currently they are on track to produce 20% of their electricity from renewable energy, mainly solar.
Pedro is right. Somebody will game the system to gain, while the others will cut and cut their own numbers down. People want more for less, it’s just human nature.
“However, inefficiency should not be associated with immorality. A utility function for a player is supposed to represent everything that player cares about, which may be anything at all. As we have described the situation of our prisoners they do indeed care only about their own relative prison sentences, but there is nothing essential in this. What makes a game an instance of the PD is strictly and only its payoff structure. Thus we could have two Mother Theresa types here, both of whom care little for themselves and wish only to feed starving children. But suppose the original Mother Theresa wishes to feed the children of Calcutta while Mother Juanita wishes to feed the children of Bogota. And suppose that the international aid agency will maximize its donation if the two saints nominate the same city, will give the second-highest amount if they nominate each others’ cities, and the lowest amount if they each nominate their own city. Our saints are in a PD here, though hardly selfish or unconcerned with the social good.
To return to our prisoners, suppose that, contrary to our assumptions, they do value each other’s well-being as well as their own. In that case, this must be reflected in their utility functions, and hence in their payoffs. If their payoff structures are changed, they will no longer be in a PD. But all this shows is that not every possible situation is a PD; it does not show that the threat of inefficient outcomes is a special artifact of selfishness. It is the logic of the prisoners’ situation, not their psychology, that traps them in the inefficient outcome, and if that really is their situation then they are stuck in it (barring further complications to be discussed below). Agents who wish to avoid inefficient outcomes are best advised to prevent certain games from arising; the defender of the possibility of hyper-rationality is really proposing that they try to dig themselves out of such games by turning themselves into different kinds of agents.”
http://plato.stanford.edu/entries/game-theory/#IP
Price fixing ensures inefficient outcomes because markets are avoided or subverted to control that which is best left to markets. Oil at $140.00 clearly did not produce good results and oil at $40.00 is a result of market efficiency. The price fixing puts the consumer in a PD and prisoners do not make good consumers, so prices collapse. $40.00 a barrel is better for the consumers and there are more consumers voting than there are cartel members manipulating prices. People vote with their wallets so they will always win in the long-term. Winning consumers ensure winning suppliers. Demand will be met because there’s no shortage of oil, only a synthetic shortage. Let’s create shortages and then charge prices as if they are real. Stupid strategy. Oil is good and plenty, so it should not be inflated to reduce demand while raising prices. That will produce huge losses as recent history has proven. Gasoline should be under $2.00 a gallon soon, which will reduce price pressure on foods and other commodities which depend on fuel to get to market. Great news for older people on fixed incomes, some of which have seen huge ($2 trillion estimate) losses in retirement investments thanks to Wall Street shenanigans. The government is giving Wall Street more cash for more shenanigans. They’re bailing out the same people who gamed the system and lost. They’re rewarding immoral behavior. Wall Street was efficient, just not moral. The bailout is neither, because the market produces winners and losers without prejudice. You win some, you lose some. With gas at two bucks a gallon, you can’t complain.
Yes OPEC members will cheat any production cuts especially with revenue falling.
Also, Iran hasn’t acted up in awhile, so some of the war premium has disappeared.
I would say $45 is the right price, and perhaps things will shoot past that with so much extra production coming on line.
By the way what does the $30 price in the article mean? Is the seller required to sell at that price, or is he merely guaranteed a buyer if he chooses to sell?
#25, that doesn’t prevent fluctuations above your price floor. You just don’t like cheap oil.
To prevent fluctuations, they should fix the dollar to gold, and it would add some stability.