Oil Price Lower on Inventory Numbers, But It Can't Go Much Lower 24 comments
Robert Weinstein
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Yesterday's release of the US inventory numbers of oil and oil related products had a quick and meaningful impact on prices.
With the news machines pumping full speed ahead to tell us how bad the economy is doing, it's no wonder why we have seen a crash in prices.
We have seen $10 oil in the 90s and sub $20 oil as recently as 2002. Can we see those prices again? Let's take a look at the fundamentals.
For sure we could see a further drop in oil prices, but to what point? Could we once again see $10 oil? Not likely, even with the fantasy idea that the so-called evil speculators are and will continue to be driving the price of oil down.
Even with a drastic drop in the price, it would be short lived unless some game changing technology displaces oil as the leading source of gas and diesel. Short of a game changer, it's hard to picture a world that will see sub $20 oil again.
On the demand side we have several major changes since the last time oil was at $20 per barrel. The US, China, and India all use more oil than they did 10 years ago. I guess the Europeans like riding the bus and train as their increase in consumption is much lower. Regardless of what Europe is doing, the fact remains that in most parts of the world, oil consumption is going higher. I would like to note that Brazil has done a fine job of changing from a net importer of oil to a net exporter. A fine example for others to follow.
On the other side of the coin you have the supply side. While many will tout the peak oil theory, I do not feel we are there yet. New fields are being found and some of the largest oil fields have hardly been tapped. Canada and the US have very large oil shale deposits available, but the cost to extract this oil is much higher than in most of the other fields in the world. This of course is a floor creating mechanism for oil. We have oil but just not at the $20 per barrel price we would like.
One more factor is that much of the world's supply of oil comes from volatile places. Taking a quick look at Nigeria, Iran, and Iraq leaves no doubt that the daily supply of oil is in a constant state of risk. Short of news that algae can be made into diesel for $1 per gallon, I can think of no other major news that would be extreme and bearish for the price of oil.
As a result, I find it very comfortable to be writing out of the money puts against USO ( an oil fund ETF) for February, March, and April.
Disclosure: I am short USO puts
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This article has 24 comments:
I'd say, more money has been lost in 'technology stocks' than in ANY OTHER market sector. go figure.
On Jan 15 07:20 AM Ishortyou wrote:
> Forget about fossile fuel jump into other technologies.
Oil shale will never yield anything as the investment is high both in capital and the use of oil, and the GAO and U.S. Army Corps of Engineers have said as much.
Tar sands production will not yield much oil, according the Canadian Energy Board, and production is stalled by the credit crunch, which will get worse.
Wind turbines and solar panels yield electric power which is not needed , as we will have spare electric power as factories, offices, and commercial centers close.
After 50 years of trying we still don't have good batteries, so electric power will not replace diesel trucks and tractors/combines.
Documented: www.peakoilassociates....
survivingpeakoil.blogs.../
Oil shale will never yield anything as the investment is high both in capital and the use of oil, and the GAO and U.S. Army Corps of Engineers have said as much.
Tar sands production will not yield much oil, according the Canadian Energy Board, and production is stalled by the credit crunch, which will get worse.
Wind turbines and solar panels yield electric power which is not needed , as we will have spare electric power as factories, offices, and commercial centers close.
After 50 years of trying we still don't have good batteries, so electric power will not replace diesel trucks and tractors/combines.
Documented: www.peakoilassociates....
survivingpeakoil.blogs.../
. Consumption growth
Yes, there will be. However, one look at last 60 year oil chart will reveal that the demand growth does not impact the price of much other than normal escalation
. Reduction of OPEC supply
Yes, OPEC can reduce the supply somewhat for short duration, 6 to 9 month at the most. All oil producing countries have made significant budget commitments & debts, just like US financial market. Regardless of market price, those countries have to pump out as much if not more just to survive
Good luck if you believe oil price will rebound
What was done to the world, last year especially, was criminal and it took the legs out from under many countries economies by taking away money that was usually spread out among many business but instead went right to fuel, leaving people unable to pay for anything else. This cannot be allowed to happen again. The United States has yet to recover and I truly believe that was the catalyst for our economy crumbling as fast as it did. We have become a service economy with low wages for the majority of the people and they were unable to sustain those financial pressures and had to stop spending. If the world wants to recover these oil prices need to remain low until people get back on their feet financially and then after that they just need to be reasonable.
What was done to the world, last year especially, was criminal and it took the legs out from under many countries economies by taking away money that was usually spread out among many businesses but instead went right to fuel, leaving people unable to pay for anything else. This cannot be allowed to happen again. The United States has yet to recover and I truly believe that was the catalyst for our economy crumbling as fast as it did. We have become a service economy with low wages for the majority of the people and they were unable to sustain those financial pressures and had to stop spending. If the world wants to recover, these oil prices need to remain low until people get back on their feet financially and then after that they just need to be reasonable.
And controlling markets = inefficiency
Children only stick a paperclip into a socket once
Speculators got spanked and they are walking away from oil rubbing their ass
If the speculators are purely at fault here, they must be at fault for the fall-out of real estate prices
On Jan 15 04:42 PM bckrd1 wrote:
> As long as speculators are allowed to manipulate oil we will always
> be at their "mercy". Being this is such a crucial, (at least right
> now and until alternatives are brought to fruition), commodity, speculators
> profits should be taxed at 100% or even more so as to dissuade them
> from this dangerous manipulation.
> What was done to the world, last year especially, was criminal and
> it took the legs out from under many countries economies by taking
> away money that was usually spread out among many businesses but
> instead went right to fuel, leaving people unable to pay for anything
> else. This cannot be allowed to happen again. The United States has
> yet to recover and I truly believe that was the catalyst for our
> economy crumbling as fast as it did. We have become a service economy
> with low wages for the majority of the people and they were unable
> to sustain those financial pressures and had to stop spending. If
> the world wants to recover, these oil prices need to remain low until
> people get back on their feet financially and then after that they
> just need to be reasonable.
kill oil prices for years....
I believe in peak oil but again we are in a unique world deflation of bubbles...
demographics via the aging baby boomer not only in the US but Japan, Germany, parts of S America, etc.......credit bubbles...asset bubbles...
wouldn't count on bubbles for 10-15 years...will have rallies and dips..
might have a mini bubble this year from government stimulus...
The first warning sign will be defaults on delivery obligations for crude oil futures contracts. Given the current economic situation, any thing can happen.
Hmmm....
Consumers should remember who is in control of oil prices.
-
pacificgatepost.blogsp...
On Jan 15 09:37 AM Perry1961 wrote:
> US oil imports dropped 19% in November. Japan imported 17% less oil
> in November.These were one month declines. Demand simply fell off
> a cliff. The 5% cut by OPEC won't help. They need to cut another
> 5M bpd. Storage will soon be at capacity,and prices will crater.
> $36 oil is exhorbitant during a recession this harsh. $15 sounds
> about right.
On Jan 15 07:20 AM Ishortyou wrote:
> Forget about fossile fuel jump into other technologies.
We will look back in history and shake our heads that we failed to notice the price manipulation of oil that was garnered by the Bush family and the cronies (investment bankers), OPEC and Saudi Royals/families that helped drive prices to silly levels.
With the current popular investment craze of buying the front month crude contract and selling months out to store it on tankers for several months to a year, i see a massive oversupply that will ensure prices do not recover anytime soon.
I expect we will see new lows in the $20.00/$30.00 range and stay there for some time.
My in-laws own a 2001 Ford Taurus. They also recently purchased a 2009 Toyota Corolla. I was looking at the two cars in the garage and suprisingly they are almost the same size, each with seating for five. The Toyota is slightly higher, shorter in length, and appears to be less aerodynamic. The V6 Taurus gets around 20 mpg, while my in-laws report that they personally get 40 mpg in the Corolla (though fueleconomy.gov reports 35 at best, new EPA standards error on the low side for people who drive conservatively).
If this is the game-changing technology you were referring to, that could cut our oil consumption in half overnight, it's already here. Smaller car engines, engineered for efficiency, killed demand for oil in the early 80's too.
If people / corporations keep fiddeling around with the supply it's one thing, but when the "Big guys" speculate, then we are in trouble.
I simply hate seeing this happen ! CL
On Jan 16 12:28 PM thatguy57 wrote:
> the speculators are the ones that oil was at its highs, in the 70's
> they said that it was going to coast more to change to unleaded when
> all they had to do was stop putting in the lead, I believe in the
> 80's in the gas crunch there where oil tankers set out in the causing
> well the oil company's where saying there was a lack of oil, witch
> was a bunch of BS. they just wanted more money.