Remember $20 Oil? Looks Like It's Coming Back 60 comments
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According to a July 16th Bloomberg article, Philip Verleger, who correctly predicted that oil prices would exceed $100 per barrel in 2007, has now predicted that due to the huge surplus and OPEC overproduction we now have, it will fall to $20 per barrel yet this year.
A crude surplus of 100 million barrels will accumulate by the end of the year, straining global storage capacity and sending prices to a seven-year low, said Verleger, who correctly predicted in 2007 that prices were set to exceed $100. Supply is outpacing demand by about 1 million barrels a day, he said......“Prices would be much lower today, but for the very large incentive to build inventories,” Verleger said. “You need forward buyers, which we had when people were fearing inflation, but as concerns turn toward deflation” that will no longer be the case.
The last time crude was at $20 was February 2002.
What would the impact of $20 oil be for our economy?
Since the current crude price is approximately $64/barrel now, that would be a 68% reduction in price. At a 2008 usage of 7,136,255 barrels per day, in rough terms, this would go from costing our economy $166,702,916,800 per year to $52,094,661,500, or save us an "energy tax" of $114,608,255,000 per year, or close to 1% of our annual GDP. (We do produce 40% of our own oil, so the savings is actually less in respect to our GDP.)
But, given that 60% of the savings gets subtracted from our trade deficit; the price of oil is embedded in most aspects of our economy; and that for a large sector of our population who spends a large percent of their budget on fuel, the impact would be greater than that 1% reflects.
Lastly, the $20 price would have huge implications for the oil exporting nations and for our future energy supply, as less and less reinvestment in the way of future oil production projects would be done.
Disclosure: No oil stocks or ETFs owned.
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On Jul 21 04:45 AM jj roberts wrote:
> Liberalism on steroids is in control of Washington D.C. and it has
> generated a fear of inflation to such a magnitude that current pricing
> of most commodities are overvalued by up to double considering the
> destruction of demand that is presently happening. The current explosion
> of credit in China by a magnitude of 4 times (400%!!!) last years
> growth will be the second bubble in their economy that is going to
> burst in this collapse. That will send shock waves that will reach
> us. I remember vividly oil averaging $13 per barrel in '98 and '99.
> I live near one of Chevron's fields and saw them shutting down about
> 60% of their production because their break even price at the time
> was $11.50 for that field. Those prices fell from an average of
> $19 the previous 2 years. That was a normal recession that occurred
> then. This recession is no normal one and may end up being colossal.
> There would be continued price weakness over an extended time in
> such a case. There would be no quick bounce. That happens in a
> healthy market. In extreme economic pain markets will languish for
> some time trying to absorb the losses. The trump card to $20 oil
> is the Weimer Republic inflation, today known as the Zimbabwean inflation.
> This will not happen in the U.S., because the government instead
> of printing money directly to pay its way, will sell bonds and suck
> consumer and investment dollars out of circulation, thus expanding
> its debt, but not expanding the M2 supply, and actually cause a contraction
> in the free market (because it spends as it wishes and could spend
> the money on hula hoops which wouldn't benefit the general market
> which would result in contraction). Can the government offer 10%
> T-bills with the Fed discount rate at 1/4%. Under the right conditions,
> yes. Those rates on money are for different purposes, although they
> tend to historically follow each other. The fact is if the consumer
> continues to erode in position and confidence, oil is going much
> lower than where it is today. The present bubble has been led by
> Goldman.
On Jul 21 04:12 AM cameroni wrote:
> ...if it impossibly does happen then you should invest in oil like
> there is no tomorrow. You will not ever need any other buy except
> oil if prices fall so low. Just back up the truck and invest like
> a drunken sailor if that unlikely day ever arrives again.
>
> "According to a July 16th Bloomberg article, Philip Verleger, who
> correctly predicted that oil prices would exceed $100 per barrel
> in 2007, has now predicted that due to the huge surplus and OPEC
> overproduction we now have, it will fall to $20 per barrel yet this
> year".
the people who filled their tankers to the brim & now have them
parked in the gulf of mexico or wherever."
Absolutely false, those tankers were filled with nearby priced oil and hedged with long-dated futures. The profit is locked in. It's called CONTANGO !!
by buying leveraged (10-1) Futures.
Personally, imho, $50 would be the sweet spot. Low enough to give the World's Consumers a break and high enough for continued Investment by all facets of the Energy Complex including Alternatives.
Our government needs to cause the price of oil to be high enough to make alternative energy profitable to develop. Done correctly we could break the strangle hold oil now holds on the US.
I do question the sincerity of the government to break this choke hold. I suspect the best lobbiest will win.
On Jul 21 11:25 AM Spectre General wrote:
> Yeah, when you boil it down to the essentials, that's the question
> you're left with: all the investment banks are exacerbating each
> swing in the price of crude (if not orchestrating each one outright),
> and despite the supply glut, everybody knows the crunch of peak oil
> is very much real and is pretty much in agreement that $100+/barrel
> is inevitable, no matter what happens to the US dollar itself. Nobody
> wants to miss the ride to those levels from the lows, but are GS
> and company so greedy that they've just decided they won't ever let
> oil drift down to those levels again, thereby closing the door for
> anybody else to make a killing on the last big price surge?
On Jul 21 03:01 PM Pottermus wrote:
> At some point the US needs to commit to the fact that at whatever
> price we have a gun to our head held by less than pro-american people.
> Oil no doubt is minipulated by various factions to create profitable
> scenerios.
>
> Our government needs to cause the price of oil to be high enough
> to make alternative energy profitable to develop. Done correctly
> we could break the strangle hold oil now holds on the US.
>
> I do question the sincerity of the government to break this choke
> hold. I suspect the best lobbiest will win.
6 or less "why?"s in a row and you end up in theology. Go figure.
On Jul 21 06:11 PM User 357705 wrote:
> Why are there 'less than pro American' people?
How can the correct price be $30 when Canadian oil sands and the new Brazilian finds have production costs of about $60. Unless you can get the Saudis to pump so much oil the Canadians and Brazilians give up, the price will stay around $60. And why should the Oil in the ground is better than money the bank, its keep g
On Jul 22 01:11 AM sethmcs wrote:
> "Peak oil" we had that in the 70s. Inflation we had that in the 70s
> as well. I think its all a bunch of bull. The correct price of
> oil should be in the 30s. No one can afford $100 oil unless you
> print a lot more money. Keep oil high and you will get a double
> dip recession. $30 dollar oil would do a lot to repair the damage
> $100+ oil caused.
Drug dealers periodically lower the price to get more users; your a cheap oil junkie, kick the habit son before its too late, have you not heard the word of the prophet T Boone Pickens. :)
On Jul 22 01:11 AM sethmcs wrote:
> "Peak oil" we had that in the 70s. Inflation we had that in the 70s
> as well. I think its all a bunch of bull. The correct price of
> oil should be in the 30s. No one can afford $100 oil unless you
> print a lot more money. Keep oil high and you will get a double
> dip recession. $30 dollar oil would do a lot to repair the damage
> $100+ oil caused.
Er, rather, current strength does mean exactly that when put in the context of the USD soon going to bupkiss! Dollar bugs!
On Jul 20 04:28 PM djj420 wrote:
> I'd look for another adjective besides "current" to describe dollar
> strength. I suggest "recent". This also means your verb should
> be changed from "retains" to regains".
>
> www.fxstreet.com/rates.../
One doesn't need to be a theologian to understand the reason why there are so many people around the world aren't 'pro American. Pure cause and effect.
On Jul 21 09:00 PM Boxed Merlot wrote:
>
> 6 or less "why?"s in a row and you end up in theology. Go figure.
>
>
> On Jul 21 06:11 PM User 357705 wrote:
> Why are there 'less than pro American' people?
On Jul 21 09:00 PM Boxed Merlot wrote:
> 6 or less "why?"s in a row and you end up in theology. Go figure.
> On Jul 24 02:02 AM User 357705 wrote:
Theology? Hmm.
One doesn't need to be a theologian to understand the reason why there are so many people around the world aren't 'pro American. Pure cause and effect.
______________________...
If you already believed anti-American sentiment was an effect from our conduct, (cause), why ask? I too believe “One doesn't need to be a theologian to understand…” however, my comment only has to do with an observation made re: inquisitive minds. It may or may not have application here, but as has been fairly well documented, many less than “pro-American” individuals have been motivated by theological beliefs / aspirations.
By the way, I apologize for the delay in response, this is a fairly dead thread and I haven’t revisited it in a while. Thanks for the response though.
it used to be such a friendly place.
blonde molly
On Jul 20 09:01 AM Greenville wrote:
> I will preface my comment by acknowledging that I'm not an economist
> or oil specialist, yet, I just don't see 20 dollar oil. It seems
> like there is just too much downward pressure on the dollar, the
> reserve currency of most oil trading. Also if inventories really
> are building, producing countries will just cut supplies to maintain
> profitable oil pricing.