Oil Breaks Below $60

With oil breaking below the $60 barrier this morning, we thought we'd provide price charts of the commodity since 2000 and since this April.  As shown in the first chart, even after oil's 60% decline since July, it still hasn't broken below its long-term uptrend line that started back in late 2001.  With the speed and forcefulness of the declines in oil over the last couple of months, however, it shouldn't be long before this uptrend is at least tested.

click to enlarge

 

Comments

[smurphny:]

If you start this chart ten years earlier, the m.a. is closer to 20 than 40.

2008 Nov 11 12:57 PM

[inthemoney:]

So many issues with this chart, but I'll just give you a couple of points: is the cost of oil production now the same as in 2001 , is supply/ demand ratio the same, how about rate of inflation ? Is the growth in demand for oil is linear? Not every relationship in nature could be reflected correctly by a simple linear trend. As the population growth is not linear, so is the demand for oil.

2008 Nov 11 01:18 PM

[JasonC:]

In any sane world, the price would have peaked in early 2006 and retraced 50% of the long move, which would have put it back at $50 or so by the start of this year, instead of $100. We'd never have made the trip to $147. There was never any shortage, the entire move from mid 2006 to the top was pure bubble speculation driven by the apparent 25% a year uptrend in the rear view mirror. It destroyed demand completely.

As it is, instead, we will have volatility and continued downward pressure for some time. The long dated contracts have yet to join the near term ones, a sign that the diehard inflation thesis has not yet capitulated --- but it will. Those will all be priced at $40 within a year. Watch.

2008 Nov 11 02:14 PM

[jepittman:]

Oil certainly looks lower. Gasoline where I am is approaching $2.00 which leaves money in people's pockets, especially since many have made the switch to more fuel efficient vehicles and made some serious driving habit changes. Not to mention that frivolous driving is practically dead. Look for more good consumer confidence numbers.

2008 Nov 11 03:13 PM

[OilyGasMiner:]

I find it interesting that market forces and selling pressure has defeated OPEC’s efforts to cut supply to artificially boost prices. This is clear indication that we are heading deeper into a recession. The question is will continual supply reductions result in an upward movement of the price per barrel? Or will the market NOT react until the financial sector has been catered to by the new Obama regime? In either case NOW is a prime opportunity to take hold of undervalued oil equities, or perhaps the purchase of oil futures. I’ve been scoping the Canadian market for opportunities as I find that this will yield the greater return relative to the US. Their economy is more sound, and regardless of the notion that the contagion will tank their economy, we are finding that the opposite is true. They are many prospects trading below cash value that will result in a handsome reward for those who are patient and willing to wait. For Cdn I personally use the Canadian portal at www.stockresearchporta... that some of you might find helpful. Don’t get me wrong, I’m not saying to buy today, tomorrow, or next week. The key issue is that no one can foresee the bottom. No technical analyst or equity analyst for that matter. We are living in unprecedented times, and let’s face it, the majority of our market analysts ARE YOUNG. What does that mean? It means they have no experience of situations of this magnitude. We ought to get back to our history books and review the past trends during the depression and get ourselves properly educated to brace the stormy markets ahead. We must be patient, and we must be knowledgeable. Be prepared.

2008 Nov 11 03:35 PM

[smurphny:]

Oil production has been growing year over year. There is no evidence that the theory of "peak oil" has any validity. With the high prices of the last few years, production has moved from the Middle East to many other areas of the world. Lots of marginal wells have been taken out of mothballs and new high tech wells have been drilled . OPEC has never had much effect on oil prices in times of recession even when they controlled 45% of the world's oil. Now they control maybe 20%. If you look at average inflation adjusted prices of oil over the past 30 years or so, it is apparent that $25 oil is not out of the question. This would, of course, drastically cut the drill count and new exotic and costly means of extracting oil and probably create a REAL shortage but that could take years. In a deep recession, the world will need a lot less oil. Many permanent energy saving changes have been made as well. Houses are more efficient, cars use less gas, commercial buildings are much more efficient. Don't count on $100 crude any time soon unless there is military conflict over Iran. That is a REAL possibility.

2008 Nov 11 05:09 PM

[Larry House:]

I have shares of ICENX, an energy mutual fund. The price dropped by over $8 yesteday. Can anyone shed any light on why such a huge drop in a fund? Thanks for any help.

2008 Nov 12 11:18 AM

[ValueInvestor:]

OilGasMiner,

Remember, the OPEC cuts are just something they tell the press. The actuall cuts could never happen or actually increase in some situations. What OPEC says and does are two completely different things. They're notorious for it.

If you think about it, why would a guy like Chavez cut production when he needs high income to pay for all his social programs? I would imagine he would ignore all OPEC production guidelines and simply pump as much as possible.

2008 Nov 12 11:58 AM

[smurphny:]

There is just no telling how low oil can go right now because the markets are working on emotion and not the partial logic they sometimes display. Crude is just a mirror of the Dow which is in a panic driven tailspin, predicting deep financial declines. It may be overblown but who can know? There will probably be some "capitulation" event but it has not yet happened. The deluge of daily bad news will keep driving everything down. There is no good news. Keep a good percentage of cash, be in dividend stocks (oil and gas trusts) that will at least add cash as you wait for share prices to recover. When a bottom is finally reached, usually no one wants to own stocks anymore and only insiders are able to profit from quick rallies. By the time the investing public realizes the trend has actually reversed and is brave enough to put money back to work, it is usually too late. This will happen before any real good news. For this reason I think averaging down and adding to dividend yielding shares is a good (but risky) idea.

2008 Nov 12 11:58 AM

[raytayzmd:]

"With the speed and forcefulness of the declines in oil over the last couple of months, however, it shouldn't be long before this uptrend is at least tested."...famous last words?

2008 Nov 12 12:07 PM

[the_lazy_ob...:]

oil is lower because credit is drying up. the extraordinary rise in oil prices was fuelled by speculation, which is funded by cheap credit. with the credit crunch, all that is drying up. if the speculators can't find cheap credit, or in fact ANY credit, to buy oil, the prices will probably go down to a more realistic level -- prices before the credit bubble era.


On Nov 11 03:35 PM OilyGasMiner wrote:

> I find it interesting that market forces and selling pressure has
> defeated OPEC’s efforts to cut supply to artificially boost prices.
> This is clear indication that we are heading deeper into a recession.
> The question is will continual supply reductions result in an upward
> movement of the price per barrel? Or will the market NOT react until
> the financial sector has been catered to by the new Obama regime?
> In either case NOW is a prime opportunity to take hold of undervalued
> oil equities, or perhaps the purchase of oil futures. I’ve been scoping
> the Canadian market for opportunities as I find that this will yield
> the greater return relative to the US. Their economy is more sound,
> and regardless of the notion that the contagion will tank their economy,
> we are finding that the opposite is true. They are many prospects
> trading below cash value that will result in a handsome reward for
> those who are patient and willing to wait. For Cdn I personally use
> the Canadian portal at www.stockresearchporta... that some
> of you might find helpful. Don’t get me wrong, I’m not saying to
> buy today, tomorrow, or next week. The key issue is that no one can
> foresee the bottom. No technical analyst or equity analyst for that
> matter. We are living in unprecedented times, and let’s face it,
> the majority of our market analysts ARE YOUNG. What does that mean?
> It means they have no experience of situations of this magnitude.
> We ought to get back to our history books and review the past trends
> during the depression and get ourselves properly educated to brace
> the stormy markets ahead. We must be patient, and we must be knowledgeable.
> Be prepared.

2008 Nov 12 12:54 PM