60 Minutes on Oil: Did Anyone Verify Anything? 78 comments
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So, 60 minutes did a piece on oil last night and, well, oops...
For those who do not want to watch it, here are the crib notes. A Wall St. cabal controls oil markets that Enron set up to manipulate prices. There is a little more but not much...
Let's look at some of the claims...
Production: Here is the EIA world oil production chart:
Click to enlarge
For those who want it, here is the link
One thing you'll notice, production, unlike the claims of the piece, did indeed fall. In fact, as price rose during 2007, both U.S., Persian gulf and worldwide oil production was below 2006 levels. As the super spike began in 2008, the Persian Gulf region increased production roughly 10% to capture the high prices. What is alarming is that U.S. production again fell (could not capture high prices) and worldwide production gained only 6%.
Let's look at demand: (millions of barrels per day world demand)
2004 - 82.41
2005 - 83.82
2006 - 84.95
2007
Q1- 85.84
Q2- 84.88
Q3- 85.54
Q4- 86.94
2008
Q1- 86.07
Q2- 85.27
Again, here is the link
So, despite what the 60 Minutes piece said, world demand for oil waned only slightly during the spike period and production was only then ramping up. Let's not forget, in Q2 2007 demand fell only to accelerate again to record highs 6 months later.
What happened after? Demand destruction. The global recession we are entering eviscerated demand and with the recent increase in production, the price that peaked in July 2007, collapsed. The problem is production has also, but that is a story for the next oil spike.
What did the EIA say in June 2008?
Click to enlarge
Here is how the EIA modeled oil prices based on "fundamentals", again in June 2008.
Was oil priced correctly at $147 a barrel in July 2008? No. There was some speculative excess but to suggest that what happen in 2007-2008 was "speculators" lacks in any basis of fact. Is oil priced correctly at $40 a barrel today? No. Far too low. Good, I'm buying...
For 60 Minutes to imply that supply / demand had very little to do with the oil price increases in 2007 and early 2008 is counter to what the EIA was saying. It does make a nice little story to blame it all on the villain of the day, Wall St. and to bring back the ghost of Enron, but it is still shoddy work on their part. Now, it isn't as bad as forging documents to try to steal a Presidential Election, but it is just as dishonest.
Here is the most recent outlook from the EIA (12/9/2008)
Disclosure: Long oil through DXO, DBO
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This article has 78 comments:
"WTI prices are expected to average $51 per barrel in 2009 (Crude Oil Prices), down from the $63.50 projected in last month’s Outlook."
Unfortunately the EIA projections are dependant on how good their guess is for 2009 global GDP. They had revised their previous month's forecast significantly:
"World real gross domestic product (GDP) growth is projected to slow from about 4 percent in 2006 and 2007 to about 2.7 percent this year and 0.5 percent in 2009. Last month’s Outlook assumed world GDP would increase by 1.8 percent in 2009."
I'd guess that there is more downside GDP risk than upside. The EAI, however, only seem to focus on potential for growth to surprise on the upside, which suggests they are biased towards the upside for oil prices in 2009-2010
"If the world economy recovers sooner or is stronger than EIA now anticipates, oil consumption could decline at a slower rate or potentially increase instead, putting upward pressure on oil prices."
Lower (or negative) global GDP in 2009 could see production oversupply for many months, which would see spot oil prices plumb new depths. It would be a great buy for the longer term, but I'll be cautious about buying for the long term just yet.
Oil=$40/BBl=Russia as a basket case
Oil=$100/BBL=Russia a super power
Which equation do you think Putin will opt for?
If you cannot see a speculative bubble as it occurs you will lose all your money. The ETF changed the oil game and the collapse will insure that the same players will move over to something else.
Like the new carbon exchange market.
the Palestinians from firing rockets. Demand has little to do with the price of oil. Perception is 9/10ths of the law.
On Jan 12 06:57 AM SAF wrote:
> The Russians cannot live with 40 buck oil. They will create a war
> situation in the middle east using their Iranian proxies. Some capacity
> in the gulf will be knocked out one way or another causing oil prices
> to climb.
>
> Oil=$40/BBl=Russia as a basket case
> Oil=$100/BBL=Russia a super power
>
> Which equation do you think Putin will opt for?
I'd have to say that it is shoddy work on your behalf. The research that 60 minutes did may not have put all the numbers out there, but it did have several sentences that you have not been able to dispute. For example, the price run up took about a year yet it seems that demand stayed the same. Statically speaking, if you look over the numbers, the deviation doesn't seem that great. It seems that demand was slowly constant as the price skyrocketed. Which shows that the public is just a hostage to be corporations that are playing with prices. Meaning, people have to fill up to get to work, school, etc., but when the prices get too hard to bare, we break. It is what is occurring now. The traders broke the American citizen.
Also, your conclusion is just dreadful. Comparing investor abuse to rigging an election then become a moral judge of which is better?? I'm speechless.
They have, it just wasn't that far of a move. The same futures/options traders that drove oil up on the long side are now driving it down on the short side. There is still no realistic correlation between the changes in world supply/demand and the artificial movements of the oil contracts.
saudi oil minister confirmed @ the time that there was no excess demand, his telephone was silent & he had the supply available in case anyone wanted it.
> jack
I wish 60 minutes would studied the underlying data as well as you did.
Experts within an inside view of things have been quoted as saying speculation had little to do with the high prices of the summer of 2008.
1) Alan Greenspan stated that internet stock and housing prices were indeed bubbles, but commodities (including oil) were not bubbles.
2) Henry Paulson stated that high oil prices were primarily driven by supply not being able to keep up with increasing demand. The lack of serious investment in new reserves and alternative energy is the chief culprit.
3) Jeff Rubin has many excellent reports and has analyzed outstanding oil futures positions and concluded that oil prices were driven by real demand and the speculator positions accounted for a very small part of oil prices.
I agree with just about everything in your article. In fact if I was a careful reader I would probably agree with everything. Congradulations, that's
the way to write a short article on oil.
As for Russia not being able to liver with $40/b oil, well, they'll just have to like it or lump it, won't they?
Clearly, oil and commodities got jammed due to speculation. As to what percentage of the jam what speculative, well, there we can debate.
In the case of oil, the contracts were purchased based on the perception that oil was going to become scarce. At the time perception and reality were pretty close.
Investors (or speculators, if you prefer this moniker) prefer to hold and to bet on physical assets when they expect high inflation. When the fed turned on the liquidity spigot, they saw inflation, and piled into oil futures creating a speculative frenzy. When it turned out that the money spigot was just barely keeping up with the drain, they dumped oil and other commodities, creating a burst bubble.
My guess (and that's all it is) is we'll see oil in the $45-$75 range for much of the year. If it looks like reflation will succeed in a big way, my guess is that oil will go over $100 pretty quickly. If it looks like the economy will be mired in recession for a while, we may see it at $25.
On Jan 12 08:23 AM Pythium wrote:
>
> I'd have to say that it is shoddy work on your behalf. The research
> that 60 minutes did may not have put all the numbers out there, but
> it did have several sentences that you have not been able to dispute.
> For example, the price run up took about a year yet it seems that
> demand stayed the same. Statically speaking, if you look over the
> numbers, the deviation doesn't seem that great. It seems that demand
> was slowly constant as the price skyrocketed. Which shows that the
> public is just a hostage to be corporations that are playing with
> prices. Meaning, people have to fill up to get to work, school, etc.,
> but when the prices get too hard to bare, we break. It is what is
> occurring now. The traders broke the American citizen.
>
> Also, your conclusion is just dreadful. Comparing investor abuse
> to rigging an election then become a moral judge of which is better??
> I'm speechless.
On Jan 12 09:25 AM long_on_oil wrote:
> If you believe that the supply/demand relationship does not control
> prices then you have your head in the sand. Weather perceived or
> real the supply/demand relationship does control prices. Take for
> example the false rumor that got started about Rice last year. The
> rumor drove the price up and all the local Sam's stores were out
> of rice in a matter of days. People bought Rice even though they
> did not need it. They bought the Rice because they thought they could
> sell it later for a profit.
> In the case of oil, the contracts were purchased based on the perception
> that oil was going to become scarce. At the time perception and reality
> were pretty close.
On Jan 12 08:56 AM misolarman wrote:
> This is why the upcoming movie 'Media Malpractice' is very important
> for everyone to see. This article highlights just the most recent
> of hundreds of ridiculas claims made by our 'media' that John Q public
> believes like it is the Gospel. A true non bias media without a clear
> cut objective is dead in our country. To them we are their Sheeple.
On Jan 12 09:16 AM HiSpeed wrote:
> So people now driving a massive THREE percent fewer road miles =
> oil dropping from 140s to 30s in a half year. Yeah, that makes perfect
> supply/demand sense.
>
> Clearly, oil and commodities got jammed due to speculation. As to
> what percentage of the jam what speculative, well, there we can debate.
On Jan 12 08:51 AM huangjin wrote:
> Markets work on expectations, not the current supply and demand.
> People believed supply would not meet demand, and the price reflected
> their beliefs. This is why current supply and demand is not always
> the whole picture. Was oil at $147 ridiculous, and a bubble? Sure.
> But speculators cannot control reality, and they lost billions with
> their bets. And the reason oil fell so far is because the economy
> has imploded. Oil speculators lost because they pushed prices too
> far, and they failed to consider a massive drop in demand.
>
>
On Jan 12 08:56 AM misolarman wrote:
> This is why the upcoming movie 'Media Malpractice' is very important
> for everyone to see. This article highlights just the most recent
> of hundreds of ridiculas claims made by our 'media' that John Q public
> believes like it is the Gospel. A true non bias media without a clear
> cut objective is dead in our country. To them we are their Sheeple.
Does it not occur to anybody that trading shares on a secondary market - as opposed to buying an IPO - invests nothing new into the company concerned? To rant against somebody who invests in oil is as meaningless as ranting against the people who bid stock indices (or Treasuries?) up to unsustainable highs and leave the wider economy to pick up the pieces from the ensuing crash. Pretty much everybody reading SA is a speculator whether or not they like to think of themselves as such, insofar as most of us aim to ride a chosen asset class as high as it will go and get out before it starts to reverse. If that's unacceptable to some readers, best idea would be to elect a government that will change the rules we all freely play by. Maybe you have just done that - but I rather doubt it. Better still, elect a government that won't debase the fiat currency.
I agree. This writer is just another blogger with a key board who took econ 101 and got a C- at some point in their life.
On Jan 12 10:53 AM Ichabod 28 wrote:
> Just another typical blogmouth who happens to have a computer, an
> opinion and his head buried in the sand........For my money, I choose
> to side with '60 Minutes' and the many disinterested other sources
> who share the same opinion.
If we increase the fleet efficiency by 3 miles/gallon, we get a 20% increase in efficiency.
We save roughly 2 million barrels of oil/day, and over 10 years, the time it would take to get any oil from the OCS or ANWAR, we save 7 billion barrels of oil -- more than half of all the oil in ANWAR.
On Jan 12 11:13 AM robert.b.ferguson wrote:
> All bias asside: If we truly want to stabalize domestic oil prices
> we must drill the OCS and other available domestic reserves. (the
> Chinese are drilling off our coast with help from Cuba.) In this
> manner we will have leverage to increase or decrease our production
> to counter price manipulation by OPEC or Russia. If we don't take
> steps now we will end up like the Eurozone in relation to Russian
> natural gas supplies. Out in the cold.
The exagerated PERCEPTION of supply/demand imbalances caused the hedge funds & other large players to drive up the oil futures. When those perceptions proved overblown and when those players were forced to liquidate thier holdings for a number of reasons, the oil bubble popped.
Where is the difference? Either the supply or the demand is incorrect. Where did the extra ~10,000,000 BPD come from?
The difference between speculating on oil and investing in stocks, like say RIMM or Google, or Microsoft, is the investment in the stock doesn't have a direct impact on everyones life. We saw what a specuative market to oil did to EVERYONE. Wether you were an old lady in Georgia who drives to church once a week or truck driver hauling loads across the country, you got affected diectly not just from filling your cars/trucks gas tanks, but to the costs of goods being shipped and sold that you HAVE TO consume.
If you were an investor in RIM in its run up to $ 130.00 then its fall to $ 40.00, who got affected except other stock players? Of course there can be some peripheral damage (employees could lose their jobs, someone heavily leverged could lose their house) but other than somewhat direct nvolvement, that old lady, or that truck driver, if they didn't have a trading account, woke up the next morning and nothing changed for them.
That is the difference between the two. I don't want to pretend to be Mr. holier than thou and that you need to do things for the good of mankind, because we all want to make money (just hopefully not at everyone elses expense) but you said what is the difference and I'm telling you what i think the difference is.
On Jan 12 11:22 AM OldLimey wrote:
> Here's a question pitched for maximum 'thumbs down': Why is it that
> folks who trade in oil and its derivatives are 'speculators' and
> folks who trade in equities are 'investors'?
>
> Does it not occur to anybody that trading shares on a secondary market
> - as opposed to buying an IPO - invests nothing new into the company
> concerned? To rant against somebody who invests in oil is as meaningless
> as ranting against the people who bid stock indices (or Treasuries?)
> up to unsustainable highs and leave the wider economy to pick up
> the pieces from the ensuing crash. Pretty much everybody reading
> SA is a speculator whether or not they like to think of themselves
> as such, insofar as most of us aim to ride a chosen asset class as
> high as it will go and get out before it starts to reverse. If that's
> unacceptable to some readers, best idea would be to elect a government
> that will change the rules we all freely play by. Maybe you have
> just done that - but I rather doubt it. Better still, elect a government
> that won't debase the fiat currency.
On Jan 12 12:55 PM Michael66 wrote:
> I have posted this comment before and I will continue to post it.
>
>
> The oil companies and the speculators want us to believe the recent
> decrease in crude oil prices is simply due to a temporary decrease
> in demand. They want us to believe things will soon return to normal
> and the oil price will again increase.
>
> The decrease in the price of crude oil is not temporary. The fact
> of the matter is that the decline in price is primarily due to a
> rapid increase in the supply of many alternatives to crude oil. The
> decline is not temporary.
>
> Crude oil is being DISPLACED by the other energy sources which are
> rapidly arriving on the market. The DISPLACEMENT of demand for crude
> oil is occurring much more rapidly than the oil companies and the
> speculaors imagined.
>
> WHY CRUDE OIL PRICES WILL DECLINE:
> Recently OPEC reduced crude oil production twice over just a few
> months. There are five wars going on in Liberia, Mexico, Gaza, Iraq
> and Afghandistan. A year ago these events would have spiked the price
> of crude oil by at least $50.00 per barrel. Recently, oil price declined
> by a record daily amount.
>
> There are several reasons the price of oil is decreasing in the face
> of so much news. These reasons are:
>
> 1. New oil has been found in Canada, Montana, North & South Dakota
> and in the ocean near Brazil. Each of these oil fields has more oil
> than Arabia. Canada is constructing several pipelines to deliver
> the oil to the US and to their west coast for shipment to Asia.<br/>
>
> 2. New natural gas has been found in Pennsylvania and West Virginia.
> This is the largest find in North America. Currently the total US
> gas production is 30 trillion cubic feet per day. The Pennsylvania/West
> Virginia gas field is expected to produce 50 trillion cubic feet
> per day or more. America’s gas production will soon triple.
>
> 3. New methods of injecting CO2 and surfactants into oil wells is
> being used to double their output.
>
> 4. Bio fuel is being produced from many plants and algae and production
> is beginning to reach critical mass. The production potential per
> acre in some cases is astounding. Many countries are racing to produce
> bio fuels.
>
> 5. Virtually every restaurant in the US and all food processing plants
> are now selling their used oil to bio-diesel producers. Every pork,
> cattle, turkey and chicken processing plant is selling their fat
> to bio-diesel producers. One pork processing plant in Oklahoma has
> an on premises bio diesel plant and is producing 30,000 gallons of
> bio-diesel per day from pork fat.
>
> 6. There are 99 nuclear reactors in various stages of construction
> around the world at this time. Several hundred more are expected
> to be built in the future. Much of the energy they produce will displace
> oil.
>
> 7. Every company in any form of transportaion business is replacing
> older equipment such as trucks, airplanes, train engines, ships,
> etc. with new more fuel efficient equipment. Airlines and railway
> companies are experiencing 20% to 25% better fuel econony with the
> new equipment.
>
> Airlines are flying airplanes with bio-fuel. They are finding the
> bio-fuel is cleaner and performs better than jet fuel. The US Air
> Force has been told to switch all its jets to bio fuels as soon as
> practical.
>
> 8. Cities and counties throughout the US are selling the rights to
> capture methane gas from landfills. This is a huge source of gas
> available at very little cost or risk. The gas is displacing crude
> oil.
>
> 9. Coal is being transformed into a clean burning liquid fuel. The
> CO2 produced as a byproduct is sold to oil companies for injection
> into oil wells.
>
> 10. Solar, wind and ocean energy is displacing oil as an energy source.
> Three new wind turbines are being erected every day in the US.<br/>
>
> 11. Methyl hydrates will one day soon be an enormous sourch of energy.
> There is more methyl hydrates deposits than ALL other fossil fuels
> in the world combined. The test wells to extract methyl hydrates
> are producing much more gas than anticipated. The researchers are
> quite excited about their progress so far.
>
> Each of the above by itself will not make a large difference in the
> price of crude oil but the sum of all of them together is world changing.
> The important thing is that OPEC and the speculators no longer have
> the ability to control oil prices as they have in the past.
All fair points except there is one small problem. NONE of the "supply" you mention is possible to be economically developed unless oil prices are above $60 and ng prices are in the $7-8 bcf range. So talking about all these wonderful solutions is really useless unless it is economical to develop them.
Yank
On Jan 12 12:55 PM Michael66 wrote:
> I have posted this comment before and I will continue to post it.
>
>
> The oil companies and the speculators want us to believe the recent
> decrease in crude oil prices is simply due to a temporary decrease
> in demand. They want us to believe things will soon return to normal
> and the oil price will again increase.
>
> The decrease in the price of crude oil is not temporary. The fact
> of the matter is that the decline in price is primarily due to a
> rapid increase in the supply of many alternatives to crude oil. The
> decline is not temporary.
>
> Crude oil is being DISPLACED by the other energy sources which are
> rapidly arriving on the market. The DISPLACEMENT of demand for crude
> oil is occurring much more rapidly than the oil companies and the
> speculaors imagined.
>
> WHY CRUDE OIL PRICES WILL DECLINE:
> Recently OPEC reduced crude oil production twice over just a few
> months. There are five wars going on in Liberia, Mexico, Gaza, Iraq
> and Afghandistan. A year ago these events would have spiked the price
> of crude oil by at least $50.00 per barrel. Recently, oil price declined
> by a record daily amount.
>
> There are several reasons the price of oil is decreasing in the face
> of so much news. These reasons are:
>
> 1. New oil has been found in Canada, Montana, North & South Dakota
> and in the ocean near Brazil. Each of these oil fields has more oil
> than Arabia. Canada is constructing several pipelines to deliver
> the oil to the US and to their west coast for shipment to Asia.<br/>
>
> 2. New natural gas has been found in Pennsylvania and West Virginia.
> This is the largest find in North America. Currently the total US
> gas production is 30 trillion cubic feet per day. The Pennsylvania/West
> Virginia gas field is expected to produce 50 trillion cubic feet
> per day or more. America’s gas production will soon triple.
>
> 3. New methods of injecting CO2 and surfactants into oil wells is
> being used to double their output.
>
> 4. Bio fuel is being produced from many plants and algae and production
> is beginning to reach critical mass. The production potential per
> acre in some cases is astounding. Many countries are racing to produce
> bio fuels.
>
> 5. Virtually every restaurant in the US and all food processing plants
> are now selling their used oil to bio-diesel producers. Every pork,
> cattle, turkey and chicken processing plant is selling their fat
> to bio-diesel producers. One pork processing plant in Oklahoma has
> an on premises bio diesel plant and is producing 30,000 gallons of
> bio-diesel per day from pork fat.
>
> 6. There are 99 nuclear reactors in various stages of construction
> around the world at this time. Several hundred more are expected
> to be built in the future. Much of the energy they produce will displace
> oil.
>
> 7. Every company in any form of transportaion business is replacing
> older equipment such as trucks, airplanes, train engines, ships,
> etc. with new more fuel efficient equipment. Airlines and railway
> companies are experiencing 20% to 25% better fuel econony with the
> new equipment.
>
> Airlines are flying airplanes with bio-fuel. They are finding the
> bio-fuel is cleaner and performs better than jet fuel. The US Air
> Force has been told to switch all its jets to bio fuels as soon as
> practical.
>
> 8. Cities and counties throughout the US are selling the rights to
> capture methane gas from landfills. This is a huge source of gas
> available at very little cost or risk. The gas is displacing crude
> oil.
>
> 9. Coal is being transformed into a clean burning liquid fuel. The
> CO2 produced as a byproduct is sold to oil companies for injection
> into oil wells.
>
> 10. Solar, wind and ocean energy is displacing oil as an energy source.
> Three new wind turbines are being erected every day in the US.<br/>
>
> 11. Methyl hydrates will one day soon be an enormous sourch of energy.
> There is more methyl hydrates deposits than ALL other fossil fuels
> in the world combined. The test wells to extract methyl hydrates
> are producing much more gas than anticipated. The researchers are
> quite excited about their progress so far.
>
> Each of the above by itself will not make a large difference in the
> price of crude oil but the sum of all of them together is world changing.
> The important thing is that OPEC and the speculators no longer have
> the ability to control oil prices as they have in the past.
The distinction isn't between equities and commodities. There are speculators in both. The distinction within commodities is between principals -- those who legitimately rely on the markets to hedge their exposure to price changes in commodities they actually produce or consume -- and the rest of you sleazebags, who claim your are creating liquidity, but actually create only turbidity. And lots of pain for lots of ordinary people.
On Jan 12 11:22 AM OldLimey wrote:
> Here's a question pitched for maximum 'thumbs down': Why is it that
> folks who trade in oil and its derivatives are 'speculators' and
> folks who trade in equities are 'investors'?
>
> Does it not occur to anybody that trading shares on a secondary market
> - as opposed to buying an IPO - invests nothing new into the company
> concerned? To rant against somebody who invests in oil is as meaningless
> as ranting against the people who bid stock indices (or Treasuries?)
> up to unsustainable highs and leave the wider economy to pick up
> the pieces from the ensuing crash. Pretty much everybody reading
> SA is a speculator whether or not they like to think of themselves
> as such, insofar as most of us aim to ride a chosen asset class as
> high as it will go and get out before it starts to reverse. If that's
> unacceptable to some readers, best idea would be to elect a government
> that will change the rules we all freely play by. Maybe you have
> just done that - but I rather doubt it. Better still, elect a government
> that won't debase the fiat currency.
When the commodities markets dictate it, pipelines strangely shut down. Supertakers somehow slow down. Refineries get "overhauled." And storage tanks fill up.
Strangely enough, those problems seem to all happen when interest rates are low and leverage is cheap, but they seem to disappear when rates start to climb and somehow getting rid of all that oil becomes a priority.
But speculation? Of course not! It's all just "bottlenecks" in the system we somehow managed to solve somewhere around the time the Ted spread went through the roof.
On Jan 12 12:45 PM CaptainJJack wrote:
> That should have read "BETTER" rather than "beer", although beer
> ideas are good, too
seekingalpha is not a trusted source of anything for me, and since this is the second poorly researched and poorly reasoned article i have seen here today (2 out of 2, batting 1000%!), i will simply once again stop wasting my time on this useless and biased site. they seem to get paid based on how much they write, not on having sound reasoning and valuable insights.
thanks for nothing.
On Jan 12 12:30 PM DiracMan wrote:
> I completely agree. Every tight sphincter Neocon Austrian School
> nay sayer against 60 Minutes here who questions the Free Market God
> is just someone who had an authority issue with a parent growing
> up. (Yawn.) I hope all of your wives divorce you as insufferable
> knee jerk crashing bores. Get some NEW knee jerk suck on your brier
> pipe in your tweed jacket ideas. Markets (especially American ones
> most of all) are full of speculators and manipulators who would buy
> Credit Default Swaps on their own mother and then get everyone on
> Earth to short her! The super spike was pure, rabid, in your face
> kill Mommy and Daddy and your 1st grade home room teacher authority
> figure speculation. That is the psychology of rabid greed. Punish
> the world by making a personal killing. At least half of the numbers
> in those charts can be completely interpreted as speculation.
>
> I agree. This writer is just another blogger with a key board who
> took econ 101 and got a C- at some point in their life.
>
> On Jan 12 10:53 AM Ichabod 28 wrote:
But, I think the point of 60-minutes was just that, an admission that the underlying physics remains unable to be properly measured. But the sudden sharp upward changes that continued off of the previous stable linear climb, followed by a sudden drop which cannot be accounted for by the rate at which supply and demand can physically change, just smells like speculation. But that's all they really were saying, that it just "smells" like speculation because reality just doesn't move like that.
So please, people, if there is anyone close to the ocean that can go out and count the number of tankers storing up oil, give us that data. Now there's a physical measure that we can count on. Because, until we can count the number of tankers and count the number of cars and calculate the rate of change based on basic counting, it's all just voodoo.
ther's nothing that drive amatter upwards faster than meeting the suppliers' need first with prices passed unto the consumers.
On Jan 12 08:19 AM pockyclips 2020 wrote:
> Agreed. Speculators drove it to $147 and will probably drive it back
> down to $35. Vlad needs his guns, Abdul needs his hookers, and Israel
> needs to stop
> the Palestinians from firing rockets. Demand has little to do with
> the price of oil. Perception is 9/10ths of the law.
On Jan 12 10:40 AM auto44 wrote:
> Peoples driving is really a small part of the total use of crude
> i would think. Falling demand by industries and shipping worldwide
> would be my guesss to have a much higher impact. Credit /mortgage
> mess caused most everything to drop like a rock.
At this point in time, if 60 Minutes did a piece titled"Sun to Rise in the East ", I'd get a second opinion...
the dollar is strong and this is off season for the oil market...
the summer should give a better feel for demand...
as far as the dollar it sure acts like it will stay strong for most or all of this year..geopolitical could change things...otherwise $30-$50 might be it for this year.
guessing we see a bottom in the next 4-6 weeks...$27-$29 is the number I
grabbed from a hat....will buy more USO if it gets there.
it was $4.50 a few months ago....
can it stay down a year or two...yes...will it be significantly higher as I age..
I say yes....just like food, water, and taxes....and eventually raw land..
of course part of that is a weakening dollar...but resources get scarcer by the decade....speculation or no speculation...
Commenting from a locale where oil production is a mainstay of the economy there are several factors missing from this discussion.
Conventional sources of oil world wide are declining; the days of easy access are numbered. In reviewing the numbers, from the sources sighted herein, indicate a growth in world demand over a period of years to the current 86.9 million barrels; much of the world’s supply is still drawn from conventional sources based in the Middle East and other OPEC producing countries.
Consider the political structure of the majority of oil producing nations. Much noise was heard from Venezuela when oil was over $145.00 a barrel, and was not Russia invading Georgia at that time to preempt any NATO inclusion there? Recent figures put inflation within Venezuela at over 30%. Did Russia close the spigot through the Ukraine only because of an unpaid bill? There is no question greed plays a roll in the excesses of the mid 2008 jump in crude oil prices; as it did in the balance of the economy that has since recoiled and is readjusting now. The question would be whose greed? To blame one faction is facile; to blame all as some form of the Dark Evil Empire is infantile.
The value of oil is a complex and international equation of supply and demand, declining reserves, difficult to extract alternatives, geopolitics, new energy, exploration, development and delivery concerns. Oil at $145 a barrel drove up the cost of construction in an expediential fashion on the upgraders and pipelines mentioned to deliver Canadian Oil to the US; at some level demand motivated Somali Pirates to seize a tanker containing 1 million barrels of oil, for which a ransom has been paid, as too the bill from the Ukraine (?). Oil at $38 a barrel may be a good investment for those speculator/investors (please change your shirt at the threshold) folks; it is however opening the door to long term oil futures at prices beyond what we have already seen.
1. The recent high construction cost, exploration cost etc. are a disincentive to finding and developing resources. In fact they cause major projects to be shelved
2. Cheap oil will delay the much vaulted shift of energy consumption in the developed world away from oil to more environmental resources.
3. The lack of economic activity resulting from the two above will contribute significant numbers to unemployment; first as manufactures and suppliers are effected; then as markets begin to return in supply not being able to meet demand and industries being forced idle by no access to resources and skilled labour.
4. Volatility in the market is part of the economic cycle and the rebound will in some time frame put severe demand on the value of supply.
5. The timing and effect of a shift away from oil to alternatives, though lauded and worthwhile, will take longer, be more expensive and have less impact than that perceived at conception; we still burn 19th Century Coal to produce 21st Electricity. Any parent of a child will tell you they take years to grow into a useful citizen and a few of them never make it.
6. The rapid forecasted decline of Conventional supplies of oil will play a factor in the future value on both the supply and demand side of the equation.
Before you engage your mouth go google this.
enron loophole.
BTW when you bet on stock futures how much money do you need
to have up front? Now how much on commodites? Do some research
before you post. Now I wonder?????? Do brokers get paid for every transaction? Is it in their best interest to have the market jumping
all over?
The writer of this article is bailing out his business..........
Battman said: "oil is only worth around $ 40.00 a barrel" -- uh, to whom? The lifting cost of conventional rapidly declining elephants is about $30, so Battman is half right, looking in a rearview mirror at Ghawar and Cantarell. Lifting cost in Siberia was $10 once upon a time,
The point was made above several times that speculators provide liquidity and help make a market. The random walk and overshoot are annoying, especially when MS and MER are pumping their inventory.
What matters most is future exploration and production. At $40, there is no incentive to drill ultradeep or to develop proven unconventional. At $25 Venezuela and Brazil go kablooey.
Outer Continental Shelf is not interesting at any price shy of $80 and 3/4 of undeveloped OCS potential is GOM. Offshore California just doesn't matter. Canada will be our main "domestic" supplier going forward.
sounds like you're confused. either speculation materially influenced prices during this period or it didn't. i believe it did. when a commodity doubles in a year (after having already doubled from a couple of years prior), then collapses, it's not a leap of faith to suggest that speculative money is involved. i don't know why it is so difficult for some to accept that speculation often drives markets in the short term....but not in the long term.
there is always a trigger for a speculative blow off. the trigger for oil was the emerging markets phenomena...including china....and related demand, coupled with known restrictions on short term supply. traders extrapolated this theme into the "known" future, driving prices into the stratesphere. but the "known" future of endless demand growth in emerging markets and their decoupling from slower-growing, developed economies, wasn't the story that played out. prices collapsed when feared demand destruction from higher prices, coupled with hard evidence of world economic weakness, started to gather steam. nimble traders who were long made their exit on the way up, profits intact, as did short sellers courageous enough to act on their convictions on the way down. latecomers, whether on the long or short side, lost big.
as an investor, i am neither resentful of traders who made money on the way up or sorrowful for traders who lost money on the way down. winners and losers is what makes markets.
One factor that pushed up the price of oil was big money fleeing from real estate and other investments into the next big thing. Speculators and investors are always looking for the next hot market.
a) supply was increasing
b) demand was decreasing
c) prices were going parabolic
I see nothing in your data to contradict those statements.
Awesome trio to bank on.
- One couldn't foresee the housing bubble under his nose.
- One made good money with excess leverage and is now busy bailing out his buddies and dumping billions not knowing whether it will work or not, while the taxpayers & homeowners(probably deserving) struggle with foreclosures
- One took millions home and claims that it was not his responsibility to check what the heck was going on in his company to the point of collapse.
like oil at 147, they too are hyped -
fundamentally, if the consumption patterns haven't changed drastically, track slightly over inflation, and there are no major geo-political disruptions, common sense dictates that there was no reason for oil to shoot from 20 to 147 in a couple of years.
ofcourse, trading, speculation, leverage have a play. some will profit well if you can detect the ride. but mostly, reversion to mean plays out in long run.
above all, use common sense. You don't need to know about the inner workings of wall street to do some commonsensical number crunching.
keep it simple and stupid. Which is why buffet wins.
On Jan 12 08:56 AM longoil wrote:
> Excellent article Todd !!!
>
> I wish 60 minutes would studied the underlying data as well as you
> did.
>
> Experts within an inside view of things have been quoted as saying
> speculation had little to do with the high prices of the summer of
> 2008.
>
> 1) Alan Greenspan stated that internet stock and housing prices were
> indeed bubbles, but commodities (including oil) were not bubbles.
>
>
> 2) Henry Paulson stated that high oil prices were primarily driven
> by supply not being able to keep up with increasing demand. The lack
> of serious investment in new reserves and alternative energy is the
> chief culprit.
>
> 3) Jeff Rubin has many excellent reports and has analyzed outstanding
> oil futures positions and concluded that oil prices were driven by
> real demand and the speculator positions accounted for a very small
> part of oil prices.
seekingalpha.com/artic...
Recent dramatic increase of US oil import is alarming. Read the article above.
It's called the short term price inelasticity of oil and anyone trying to get a grasp of the oil markets should google a bit and read about it. absolutely recommended reading: W. Brook's paper on the subject!
On Jan 13 06:13 AM User 305589 wrote:
> all the guys claimign that oil is/was too expensive at $40 or 50/bl
> or above certainly have never ever talked to anyone working on the
> ground in the oil business. except for the middle eastern countries,
> there is NOT ONE significant producer in the world which can replace
> a pumped barrel of oil for less than 60-70$, and many need at least
> 80-90$ for finding, pumping, and delivering a fresh barrel of oil.
> That oil is selling at the current cheap levels has two major reasons:
> a sudden supply glut caused by massive liquidation by hedgefundsand
> all sorts of speculators and financial oil investors (e.g. even pension
> funds) combined with demand destruction in the wake of the unfolding
> global recession,. second: a lot of governments (Iran, Russia, Venezuela,
> Mexico Saudi Arabia etc.) need every single dollar they can get from
> their oil exports. hence, they do what no reasonable capitalist owner
> would do: they sell oil even way below replacement costs! Reason:
> very simple: they need the money NOW to stay in power - so they do
> not bother about the depleted reserves and the investment-strapped
> outdated oil industries their countries will inherit a decade or
> two later. It's called the short ter, price inelasticity of oil and
> anyone trying to get a grasp of the oil markets should google a bit
> and read about it. absolutely recommended reading: W. Brook's paper
> on the subject!
Also, if you have a real and free market, it will adjust eventually. Why didn't producers lock in high prices for future production at very profitable prices when oil was at $150 if it was way above their break even prodution rate?
Do you (or anyone else) have a link or a more complete citation?
Thanks for your help.
> absolutely recommended reading: W. Brook's paper
> on the subject!
www.globalresearch.ca/...
The list of banks heavy in Energy speculation looks eerily similar the banks standing there with hands out when Hank Paulson started giving the bail out funds.
Coincidence? I think not
On Jan 12 10:53 AM Ichabod 28 wrote:
> Just another typical blogmouth who happens to have a computer, an
> opinion and his head buried in the sand........For my money, I choose
> to side with '60 Minutes' and the many disinterested other sources
> who share the same opinion.
On Jan 13 12:05 PM Guero wrote:
> Spoken like someone who is long oil....and there it is in the disclosure!
On Jan 13 03:29 PM razorack wrote:
> What a lame thing to say. he is hardly going to write something that
> contradicts his investment position, or is it the other way around.....
> he is hardly going to invest in the opposite direction to his fundamrental
> view of the market . now is he
These low prices cant support the industry. Exxon was very smart, they didnt try to go for more capacity to capture more profit from the high prices, and now they are in an amazing position going foward. Most other companies over committed and lots of exploratory activity is being cut, companies are going bust. We are loosing supply like crazy at current prices. I cant wait to hear oil companies asking for bailouts...
Meanwhile, We are being set up for a super spike in the near future (probably within 12-36 months). Once the Recessions is perceived to be over (Recessions normally dont last for more that 2 years), lots of this floating liquidity created by the Fed will end up back in oil (and other commodities, equities..heck even goods), as contracts are future oriented. the spike may not hit $140, but it will probably be a 100%-190% jump in a few weeks time.
Simple econ 101 with a free market will show that supply and demand control prices in the long term. Anyone who fights that simple truth does so at their own peril.
small changes in the supply/demand can cause huge prices changes that tend to go further north and further sound in the short term than ideal.
Northwest Air bought contracts that equal in the neighborhood of $100 oil. I guess you can count them in the list of evil speculators but I for one would rather trust an open and equal access market to what some in Congress would do to our free market.
On Jan 12 08:51 AM huangjin wrote:
> Markets work on expectations, not the current supply and demand.
> People believed supply would not meet demand, and the price reflected
> their beliefs. This is why current supply and demand is not always
> the whole picture. Was oil at $147 ridiculous, and a bubble? Sure.
> But speculators cannot control reality, and they lost billions with
> their bets. And the reason oil fell so far is because the economy
> has imploded. Oil speculators lost because they pushed prices too
> far, and they failed to consider a massive drop in demand.
>
>
In the short term the ups and downs of oil price is controlled by speculaters speculating on the near future price of oil. Long term the realities of supply and demand will control the long term moving average. I think this is why oil suppliers are so slow to shift capital expenditures and drilling plans. In the late 90's oil plummeted and even with falling prices they were slow to respond. It makes sense to respond slowly since the oil futures swing so dramatically. Personally It would be interesting to see the inflation adjusted 200 moving average of oil. I'd expect to see it rise pretty steadily based on slowing rising demand and the increasing difficulty of extracting it from the ground.
I continue to expect US based oil supply to drop.
> jack
On Jan 12 01:11 PM JCC wrote:
> Looking at your chart it shows peak production of ~75,000,000 barrels
> per day. This is ~10,000,000 lower than published consumption of
> 85,000,000 BPD.
>
> Where is the difference? Either the supply or the demand is incorrect.
> Where did the extra ~10,000,000 BPD come from?
>