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Oil is now front and center on everyone's radar. Last night, CNBC ran a special tonight about oil, and had a banner running across their ticker titled "America's Oil Crisis." Congress is looking for scapegoats to blame for high oil prices, and is hauling in oil executives to testify, and propsing stupid ideas like a windfall profits tax.
Funny, look at the first chart below of wheat (and the chart for corn looks identical). Looks like wheat and corn have had parabolic moves higher, but I haven't heard any talk of windfall profit taxes on the farmers. Rather, Congress is trying to pass further subsidies for the farmers, who are arguably in the best position of any industry in the country.
The next two charts show the extreme, straight up moves in other commodities. I have included lead and nickel, but there are several that fit the bill. What I am highlighting is that these parabolic moves higher are never sustainable. And when they eventually run out of steam, they usually succumb to large corrections.
Given what we have seen in many of the other commodities, take a look at the chart below for oil. Look similar? If I showed you the charts for all of the other commodities, a logical conclusion would be that the trajectory of the upward moves was unsustainable, and susceptible to a sharp pullback.
However, for oil, for some reason, people think that the recent high prices are a sure signal that $150 and then $200 are right around the corner. Now I want to be the first to say that I have no idea how high oil will go. To be honest, I am surprised it ever reached $135.
Unlike stocks, which can shoot to the moon, high oil is self-defeating. As prices skyrocket, it slows economic activity and can bring some forms of transportation to a halt (just look at the news from AMR Corporation (AMR) that it is cancelling flights, and Ford (F) is curtailing production on some of its gas guzzling vehicles). That, in and of itself, would cause a correction in the price of oil (as demand trails off).
The chart below is from the good folks at Bespoke. It shows the relationship of the current oil bubble to the last 2 big bubbles in tech stocks and then the housing market. This week, the rise in oil eclipsed the mammoth rise in tech stocks in the late 90s. Pretty incredible, huh?
And we know what the end result of those two bubbles were, right? They both ended very badly, especially for folks who got sucked in anywhere near the top. Which brings me to the million dollar question: where is the top?
No one knows for sure where the top is, and those that tell you they do are simply lying. If you had bailed on tech stocks in 1998, you missed quite a move higher still. If you sold your house in 2004, you left a lot of money on the table. So my hunch is that I want to remain long oil/energy names, although I do not want to chase the recent move higher.
That said, when this bubble bursts, most people won't believe it and will continue to buy on the way down. But history tells us that we should look for those signals as a reason to lock in profits for good, and then simply move to the sidelines.
[In Part 2, I will delve into who is really to blame for high oil prices (hint: it's not the oil companies).]
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This article has 106 comments:
Very good paper Kahn. No matter how many times bubbles happen. Pleople always say its "different this time".
It is complete nonsense, to compare wheat to oil. The supply picture for wheat changes every year, oil's doesn't.
And please: To say that AMRs move will cause the oil crash is a bit daring, wouldn't you say? Airlines have been managed incompetently and restrained by unions when oil was 10 bucks and they went broke at 10 bucks a barrel.
The same goes for Ford. A bureaucratic union restraint organization which will hopefully go bankrupt soon along with GM. Why does every carmaker in the world from Mercedes over BMW and Volkswagen to Toyota and so on want to produce cars in the United Sates? Because it pays! Ford and GM simply suck!
Established demand destruction doesn't apply today, because unlike in previous decades the world is out of capacity and the 400.000 barrels we use less are getting sucked up easily from others. May be when the emerging markets stop emerging and go as developed we can calculate as we used to.
As I recall, in January a lot of people called an end to the commodities boom when the Baltic Dry came down rather swiftly. Hoopla, it is at a new high, economies around the world report high growth rates, most of the times against expectations.
May be it is because there are folks out there, who unlike us, don't have to beg for credit so they can buy stuff. They have the money we shipped overseas in exchange for goods, because we are to inefficient to produce these goods ourselves.
So what are we doing: We complain and look for witches we can burn at the stake. Great that always helped - for centuries.
Instead we should buy more efficient cars, trucks and aircraft and we should kick some serious Washington butt until they open up every area for drilling, so may be we get some more oil of our own in 10 or 15 years.
May be our leadership should stop begging the Saudis for more oil. What a humiliation. We saved their butt more than once and know we beg on our knees: Please, please great king. Give us a little bit of oil! Because they worry about what the sight of an oil rig would do to the coastlines at home.
That is why we are loosing. We complain and drown ourselves in selfpity, while others do stuff.
Brazil can do it, we can do it. I think we have more coastal waters than Brazil.
i suggest you read this sa-article referring to a recent eye-opening testimony about impact of speculators and pensionfunds(!) on oil prices before the us senate:
seekingalpha.com/artic...
Being a contrarian, I will wait for a pullback to take out my stop-loss limits and get back in, when oil bottoms between 95$ and 105$.
I think, that oil will go down substantially, it's long-term uptrend notwithstanding while grains and agricultural commoditoies will stay high and climb higher. there is speculative money in them, too, but demand growth there is much more real than in oil and while you can stop driving for a month - you cannot stop eating
Do you even realize, that without oil, there is no grain production. And if there was grain production, you couldn't transport it to consumers.
10 calories of oil equivalent are spent to bring 1 calorie of food from the field to your table.
Oil makes the price of everything.
And if there is anyone badly capitalized, than it is us.
www.investorslive.com/.../
1) When people discuss commodity supply/demand, they always mean within the U.S. until they get reminded that there's other people out there.
2) Commodities and commodity ETFs are expected to behave like stocks, and chart overlays are produced all the time reinforcing this misconception. Stock mavens new to commodities have real trouble recognizing the differences.
And BTW, no farmer gets executive compensation like the heads of oil companies. So discussion of a windfall-profits tax for the ag sector is not in the cards. But a wpt for Big Oil does not offend my theology.
And so they will be having their industrial revolution now. They don't care about the falling U.S. Peso and what the price up crude is today.
Deal with it. Inflation is here to stay.
Why is that, Sir?
There is much discussion about how the prices are being driven by the "Emerging Markets". Having spent a lot of time in third world countries, I can tell you that those markets are far more sensitive to price swings than the US. Thus, if they are exposed to the same price swings, they are more likely to drop demand quickly.
Of course, there are factors that make these scenarios "sticky" like the comments on subsidized prices in some countries. However, like the thousands of examples in history, governments usually have a hard time maintaining price constraints on commodities. They will move. Prices will moderate.
In the end, high oil prices will be what helped us get away from it's leash. When 400 miles travelled can cost you $50 vs. $100 people will start thinking that an extra $2500 for hybrids/elictricals are pretty smart.
Say what you will about emerging markets needing oil, if the U.S. cuts it's usage in half over the next 30 years oil goes down (adjusted for inflation ofcourse).
Also don't forget..... OIL IS PRICED IN DOLLARS!!!
see what happens eventually when rates go up (that is definitely more long term however)
Disclosure:
Disregarding numbers which were used to just have a number, the logic I don't think can be argued. There was an old saying in times long ago "No wood, No kingdom" wood was the fuel, then came coal, then came oil, next is something else. When people say oil is a necessity it just makes me laugh. Intelligence and ingenuity is teh necessity.
Agree?/Disagree?
Prices will increase until demand shows some elasticity. When a rise in price causes a drop in demand large enough to create a net drop in revenue prices will stop going up.
Of course the reaction is delayed, and we are still waiting for the demand side of the equation to react, but it is inevitable. Then comes the price correction.
Timing the inevitable can be a bit tricky.
And AMR and ford he used as examples that trasportation is failing right now due to high oil which will in turn drive demand down for oil not that one company will take it down.
I was a little harsh.... didn't think you were still looking at article :)
This price will rise high enough to put everyone in a global recession. as the economies try to expand again....it will again put the economies back into a recession until we can find another energy source.
the problem is.....there is nothing out there that can dispalce the amount of energy from oil in any timely fashion.
We currently use 3 cubic miles worth of oil for our total energy needs world wide.
It is estimated that we will use 6 cubic miles worth of energy by 2030.
1 cubic mile worth of energy is an equivelant of
1,300 wind turbines installed every week for 50 years
1 900MW nuclear power plant installed every week for 50 years
250,000 solar panels installed EVERY DAY for 50 years.
During that time frame...we will hit peak oil, peak NG, and peak coal.
How do you grow economies without growing energy? We can get more efficient.....and maybe we can reduce our consumption of energy by 1 or 2 CMO worth.....but the math still doesn't work out.
Its going to get ugly.....and neither price nor technology will increase our oil supply....just pull up a chart of USA oil production.....neither price nor technology changed our supply....why would it for the world?
The true problem is too many people......or growth of either economies or population. its not sustainable.
there is a couple of scenario's.
demand falls while supply remains flat (lower prices) but as prices fall those expensive projects come offline
demand tries to grow....but supply is flat. higher prices
demand grows, supply falls, very very high prices
demand falls, supply falls faster, higher prices.
I think we are at demand is growing and supply if flat now...and supply will soon start to fall at 6% a year, year over year.
I just hope we don't have to get it. Keep it in the ground and let us continue our work on alternative sources. It is extremely unfair to talk about how long it will take technology to offset current demands when technology grows faster than the price of oil.
I also am looking forward to Part II, which will likely promote more great discussion. I think such discussion, debate, or whatever, is a large part of the solution.
its going from one well that produces 5,000 barrels a day in SA
to huge capital, long lead time, low flow rates of oil from tar sands....which require huge amounts of resources...which could ultimately limit us. just do the research. Money can't defy physics...regardless of how much there is.
Anyone can turn this statement around and say, do you realize that without grain production there would be no oil because there would be no people alive to make the oil because they would all starve to death!
Congratulations! That is the best answer I heard in a ling time.
Sure, you can produce food without oil, but there will be 3 billion people less to eat it.
uh oh.......
It's always interesting to see how people who or long or short a stock or commodity leave their brains at the door. They're like directors of not-for-profit organizations.
No matter how deeply invested you may be in a trade or an idea, you've got to be able to step back and look at the situation objectively, or you'll lose your shirt. Some people never learn.
At this point, the bulls are focused on what they see as a limited supply of oil. They may be right.
But price also affects demand.
And demand doesn't have to go down to prick the oil bubble.
All that needs to happen is a shift in expectations.
Once the markets decide that consumption will be contained by price, prices will drop. The bubble will be pricked.
Are we at that point? The markets aren't saying so yet, but the growing commentary by bubble skeptics suggests that perceptions are changing and the adults may be gaining a hearing.
In a world where the population increases yearly, and the growth of oil hog middle classes is skyrocketing, consumpion of a finite (please note that word) resource increases. So tell me again how a finite resource, which has between 25 and 65 years of life is overpriced. If it were water, and we were running out, what would you say?
Sinking the price of oil will require a sinking of demand. Since the world runs on oil, the world will have to stop demanding it...
A worldwide recession?
The current conventional oil resource RATE of 75ish million barrels a day will experience a conservative rate of decline of 6%. If you extrapolate those numbers going forward....in 25 yrs we will be producing 15 million barrels from that base. Estimates have oil demand going to 115 million barrels over the same time frame. We need to find and develop 100 million barrels during that time.
There is no way we will be able to produce that amount of oil at that RATE....No way...thats higher than our current base of easy and cheap oil.
all energy comes from the sun......alternative technology isn't there to produce the amount thats desired at the prices we want....we will have to live with less energy IMO.
Without ANY DOUBT, this bubble will pop. How high it goes before it does I have no idea. But based on the sheer number of ignorant rants proclaiming there is "No Direction But Up Forever" it is clear this bubble will be a whopper. Unfortunately, if it pops later rather than sooner it may even be The Whopper.
The issue isn't that oil has spiked and is BY GOSH GOING HIGHER. The issue is that by setting energy policy based on irrational fears of theoretical ecophobic circumstance we have caused energy to spike BY SENTIMENT ALONE and have thereby created an environment of extreme uncertainty regarding future CAPEX not only in the oil patch, but the entire energy sector. The result is now Shortage-By-Fiat with prices dictated ever-higher in the commodities pits with the net result that major sectors of the economy are now in extreme jeopardy of collapse.
In other words, congratulations to all you left-wing energy scholars and self-appointed enviro-geniouses out there! You have literally worried us to death. Well done!
Yada, yada, yada. I can already hear the replies. The sky is falling, yada. Too many people, yada. Too much wealth, yada. Too many cars, yada. The world is ending in 18 months, yada.
Personally, I am going short against you and I will take your money when this does what it always does because I assure you that it is NOT different this time.
yes it is different this time. People never learn. Oil is evil. All Chinese make 50k a year and can afford oil at any price. During a bubble people will find a 1000 reasons why it will never go down.
Since I am not a doomsday leftwinger, may be I can answer you.
The only thing You guys ever say is: 'It's a bubble' and 'This time it's different'.
You don't give any solid reasons or facts. You simply are convinced, that oil is in a bubble. You may be right or you may be wrong.
Ramrod, it is not a question of whether or not we run out of oil tomorrow. I don't think this is going to happen in my lifetime. The Question is: How much daily production can you have? And that is obviously a problem. While it is true, that new production is coming online - all that E&P money must be going somewhere, bubble proponents always, always, always forget the depletion rate of existing fields. The best example is the Cantarel field in Mexico, which is so crucial for the US, because it produced such a vast amount of light sweet crude, the stuff our refiners want so badly. PEMEXs output imploded and suddenly the Mexicans get, how hard it is to replace a million barrels.
Again, yes oil has gotten ahead of itself. Yes, if the entire world not just the US goes into a recession, the price will be cut in half. But nothing changes the fact, that the world has to get used to elevated levels, when it comes to the price of oil. Or do you seriously believe, that someone, who pays five and six hundred thousand dollars a day for an offshore rig, will sell that stuff for 15 dollars? Or that Shell will sell that oil from their oilsands project for a handout, when they have to invest 15 billion dollars for 500.000 barrels a day output.
To sum up: You guys basically pray the same thing over and over again: Oil must be in a bubble, because it is inconvenient, and anyhow, oil is a bubble.
Why don't you take a look at the inventories at Cushing, which are the bellwether for NYMEX Light sweet crude? They are down by almost a third compared to last year. Considering that the dollar doesn't buy a spring 2007 dollar, the rise in the price of NYMEX crude is justified.
There may not be a lot of demand for the sour Iranian stuff, but they are not getting 135$ dollars per barrel. But there is a lot of demand for sweet grades.
This has nothing to do with doomsday stuff. The simple fact is, that cheap oil is history. The economy will adapt, and even you guys will get used to it.
In the short run You guys may be right, but in the long run I am.
Long: RIG, SLB, HAL, OXY, APA, APC, PBR
and if production coming online the next few years equates to how many barrels? and you look at the declines from mexico and russia...not to mention their internal demand.....you have no DATA to stand on.
there is going to be short term prices volitility....but on a long term uptrend unless we get some other energy source or transfer to a different fuel for transportation.....whi... takes time.
furthermore....even if we do go to NG or electric.....we just shift the problem to something else.....and we don't have the energy required to transfer the majority over....unless we start acting now.
everydayfinance.blogsp...
3 or 4 years ago, when the price of oil was up 4x to $40, you had to be a peak oil optimist to predict $80 oil. Now the peak oil pessimists are predicting a bubbleburst down to $80 oil.
To my mind, that's not a bubble. It's a long term trend with high volatility. I guess if you're a day trader, that's the same thing.
If anyone bothers reading news articles from around the world, they will see that, aside from China and India, the rest of the world is looking at curbing demand for oil. All those emerging economies are suffering because everything is priced in U.S. dollars, and whatever net gain they were having from exporting to the U.S. is now being eaten up by importing of oil at the higher rate.
One thing that I would emphasize is for people to look at the larger picture, how the population is being affected, etc. not simply at the reaction of the markets. I can tell you one thing, people will react a lot faster than the markets.
PJW---USO is oil and DUG is oil producers. Its like gold and gold mines. The mines usually go up first and down first. Same with oil. Oil producers will go down before oil. Producers look to the future (or they are soon out of business).
Dug is short oil stocks, not oil, thats how they can both go up.
I call it peak oil.
remember....oil is used in a lot of places. I am not saying the price of oil is immune to go down.....but in the short term...there is no good quick fixes.
and we don't know the energy return on energy invested for most of these energy gathering systems. as most of the processes are made from oil, by oil, transported by oil. Things might not be as rosey when you are losing 40% through transmission lines, then an energy loss for storing the energy in batteries, then recalling that energy.....and if the energy return on energy invested has a payback of 30 yrs or the life of the wind turbine or solar panel....is it worth making?
There is only one source of energy which can replace oil and we already have it. Nuclear
Wind was great in the 1600s but can not produce enough energy for our needs. Sun is no better.
that could very well be pulled in a bit when everyone does a mad dash to nuclear. I have read that Thorium may also be used.....and that Uranium can be recycled a few times......but even so.....we are mainly living off the inventory of Uranium right now....we are supposed to be in production shortfalls by 2013-2015 from the studies that have been studied.
take a look at Cameco's website....they have a couple of studies...as does a few others....even google and search around for a day. its pretty interesting stuff.
www.cleanenergyfuels.c.../
He wants to remove NG from producing electricity...and add that to transport....thats where we get the gain.
he is a proponent of wind....and I agree with him. What he says makes SENSE.
these other people are spewing information without reading too much into the problem on the supply side.
this is a supply side driven problem....and soon supply will start to dwindle and fall off the cliff.
I really cannot relate to economists.....as they think prices and money will cure problems.....yet the phsycists and geologists are saying otherwise.
I am sure we will probably land somewhere in the middle. But one thing to keep in mind.....to produce the same amount of oil in the quantities we are using.......the numbers are something like 15 billion for 500K barrels. if we need 80MBPD NEW oil by 2030......thats 2.4 trillion bucks in investment....and the sad part is.....thats probably a conservative estimate. Now this doesn't take into account the increased energy costs for the infastructure.....prob... using water from the ocean, etc....which would probably be safe to say that the cost would be closer to 10 trillion dollars. Yes.....a factor over triple what I just estimated.
Look at some of the new projects....and how their costs keep tripling in price.
web.mit.edu/ceepr/www/...
in fact, people are forced to leverage oil as the better than gold substitute to the failing dollars. What are you going to do with it, AG had printed too many dollars and Mr.B keeps doing it till now.
America needs to pay off the war expenses and they do not produce nothing concrete to stand back at their dollars.
as simple as that.
True, there is a difference between trends and bubbles; bubbles pop. And it is not until after it pops that we know the truth. Neither the Tech Bubble nor the Real Estate Bubble were thought to be so until after the fact. Time will tell on the commodity front.
True, there is a difference between trends and bubbles; bubbles pop. And it is not until after it pops that we know the truth. Neither the Tech Bubble nor the Real Estate Bubble were thought to be so until after the fact. Time will tell on the commodity front.
My belief is that all these energy and commodities companies are still very profitable at oil at $100 a barrel. The wealthy all hold energy companies. There's also been a huge migration of 3rd world nation immigrants to 1st world nations. Look at all the 10 million illegal Mexicans in the USA now using all our oil imports at home and in their cars. Europe has millions of Islamics living in France and the Netherlands pushing populations to new limits and also filling up tanks with oil. Now if you look at Emerging markets you have that perfect storm.
When the US Government stops printing money like water then maybe oil with retreat. We got caught with our pants down. When I read in the WSJ today the number one call in America is a Ford Truck, I think we're all getting what we deserve. I hope gas goes up to $10 a gallon, so everyone can suck on their SUV. It reminds me what happened to boats about two years ago (a precursor to what we're seeing today), when all the boat owners couldn't sell their gas guzzling boats and stated trying to trade them for sail boats. Now, every used car dealer will start to resemble a grave yard of the excesses that one were, a bunch of big ugly SUV's and dumb looking giant fake Hummers.
I noticed my stocks started to falter a bit when our jacka$$ government announced anther "bail out" of $300 billion for housing. If the US Government thinks that handing out $300 billion dollars to housing speculators and people with 2 to 3 mortgages with negative equity will solve all our problems they are even dumber then I thought. They will devalue our US Dollars back into the dark ages and OIL will spike even above $200. Just read Stephen Leebs book where he predicted all this over 2 years ago, but every one thought he was crazy.
Well reality counts, and call it a bubble if you wish, but reality is that you will be paying over $4 a gallon at the pump this weekend. It's not the same as houses - hey there are thousands of empty houses in the country right now and many more for sale, but I don't need to buy a single one of them. But American needs to get its fill of oil. There may have been a tech bubble, but I didn't need an intel chip, I could have gotten a motorolla chip, an apple chip and AMD chip. But guess what 100% of all conventional cars in the USA use OIL, wither diesel, high or low octane. This is NOT THE CASE IN EUROPE, where gas stations also sell LPG and can throw a switch to not use gas.
Well, how can you know that oil is gonna come down, when you don't know why it is going up?
9 out of 10 oil bears refer to wishful thinking. Nothing more.
Buy a more efficient car. Why does the average Joe here drive a V8, while average Joes in other countries drive a 1.6l 4 cylinder.
And write your Congressmen and tell them to give the enviros the finger and open up every area available for drilling.
85% of our coastline are unexplored. There could be 5 Tupis or Cariocas out there and we don't even know it!
"prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year; that's an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day. There is a crucial distinction between Traditional Speculators and Index Speculators: Traditional Speculators provide liquidity by both buying and selling futures. Index Speculators buy futures and then roll their positions by buying calendar spreads. They never sell. Therefore, they consume liquidity and provide zero benefit to the futures markets... traditional policy measures will not work to correct the problem created by Index Speculators, whose allocation decisions are made with little regard for the supply and demand fundamentals in the physical commodity markets. If OPEC supplies the markets with more oil, it will have little affect on Index Speculator demand for oil futures. If Americans reduce their demand through conservation measures like carpooling and using public transportation, it will have little affect on Institutional Investor demand for commodities futures."
Conclusion: OPEC are right; it's not fundamentals, but rampant speculation that has driven oil prices above $100 (marginal cost of the most expensive new fields/alternatives like tar sands is $70); time to either dump SPR crude on the market, or for the CFTC to suspend new index buying of oil futures before the US economy slumps into a nasty and intractable recession. As with the sub-prime debacle and the tech bust before that, weakly regulated financial capitalism is increasingly self destructive.
Uh, no. Price is not important. Recoverable reserves are what matter, and after that political, legal, and regulatory hurdles. Most of the world's recoverable reserves are in the hands of dictators and bureaucrats, in a word: morons who do not understand where oil and gas come from or what it takes to find it, produce it, refine it and transport it. The integrated majors (Exxon, BP, Shell) are in worse trouble than you realize. They added reserves by M&A, not new recoverable discoveries.
OPEC can't increase production. They're having a hard time hiring skilled people, and there are petrophysical limits to production in mature, declining fields including Ghawar. I wouldn't be surprised if Pedevesa went offline in an explosion, since Chavez fired the entire professional staff and replaced them with morons.
I think it's a chumps game to speculate in oil, despite the fact that world supply is declining and demand is elastic. It is especially dumb to invest in PBR.
In regards to PBR - more ignorant American miopic thinking. Did you know that Brazil is the size of the continental US. What if you had a chance to buy Exxon 50 years ago? Would you do it? That's why I own PBR, because they are positioned to control the energy of South America as they continue to emerge, NOT because oil is over a hundred bucks a gallon. Maybe you're just pissed off because you didn't pick it up around the time of the split a few weeks ago, you could have made a pretty penny.
It is a bubble if:
1. Peak oil theory is wrong.
2. Inflation reverses.
3. Production starts to catch up with demand.
If peak oil theory is wrong, then the data is lying to us. Or maybe you are betting on an "oil conspiracy" that is perverting the data. To me, the data seems sound and conspiracies almost never do. Production has been surpassed by demand as expected, anticipated, and predicted for YEARS! What a shock!
Could inflation be reversed suddenly? The fed is currently handing out FREE MONEY to taxpayers! Did they pull that money out of a carefully managed and balanced federal budget? No...they fabricated it! Welcome to inflation. Our money supply increased simply by wishing it into existence. It would take a totally different set of priorities to reverse inflation. I'll hold my breath and wait for that to happen then you call me up and ask for "Blue Boy."
Production catch up with demand? Yes it will, when demand is reduced. If you think that getting congress to allow drilling or exploration on land that is now off limits, then you do not understand the problem. In the time it takes to develop those new reserves, demand will have increased even more. Production cannot keep up with demand any longer, even if you opened up the whole world to exploration. The whole point of peak oil theory is that production will fall in relation to demand. There is no "catching up" except to control demand.
Yet, oil prices are experiencing a bubble...sort of. You can spot the bubble because it will be the high point on the chart right before the low point...which will be before the next high point.
Short term traders are funny and so far have been really bad guessers. They eventually have to be correct for at least a few percentage points somewhere along the way.
If there really is a true permanent peak in price, I would be more concerned about what is on the other side of that bubble.
Peak oil is about production curves, not price. It is totally reasonable to go through peak oil with very high prices, followed by crashes, followed by a resumption of high prices.
Peak oil says nothing about price. It only speaks to production.
Mike
You proved that it is a bubble.Oil price moved from 2-35 in 60 years but from 35 -135 in less than 2 years.Do your math
Sorry - but the windfall profit tax sounds good to me. We got to do something about the deficit - it is one of the forces pushing the dollar lower (and commodities higher.
We need to stop paying for this idiotic war. Since the oil companies are the ones profiting from it, damn they should help pay for it. Otherwise it is just a huge subsidy on the part of the US tax payers. I thought you conservative types hated budget deficits?
The war was to get oil - now let oil pay.
I'm one of those who don't decry the upward spiral of oil prices. I say and predict that oil will be at 200 dollars/bbl within 2 years. And I say GREAT!
None of our politicians are talking about what to do about this, other than threatening oil companies with windfall profit taxes.
When oil prices go high, American consumers will FINALLY realize what they have to do...conserve...buy small cars, go to replenishable energy systems, etc.
It takes a "shock" to get American consumers into synch with the real world. Anything less than 200 dollars/bbl just means status quo. And status quo is NOT working.
High energy prices are with us forever, as long as we follow our present wasteful actions. I have NO sympathy for Detroit auto companies, who have over-paid and under-brained idiots running them. I hope half of them close down permanently.
I welcome high energy prices. They will drive us where we need to go.
sanjosemike
The end of cheap oil has arrived faster than analyst from the west can change their anglocentrist and anachronistic reasoning
Many Gomez
Switzerland
1. Emerging markets have huge economic growth. Right or wrong?
Right.
2. Anyone think, that growth of that magnitude can be achieved without
substantial growth in demand for oil and other commodities?
Not really.
3. Is it true, that when there is one pie, and suddenly twice as many
people want a piece of that pie, that the price for a piece is going to
double? Yes!
4. Is it true, that every 'super giant field' (which made cheap oil possible)
on the planet is in decline?
Yes.
5. Do oil companies around the world scramble to bring new production
online? Yes, otherwise oil service companies wouldn't make as much
money as the do.
6. Is it true, that this new production is mostly absorbed by the decline
of existing production? Yes, obviously.
7. Now the important question: Is new production coming online ONLY
because of the seemingly high price of oil? Yes, definitely!
8. Is any oil company going to develop projects with per barrel costs
north of 65$, when the price of oil is 65$ or less? Hardly.
To sum up:
NEW OIL FIELDS ARE BEING DEVELOPED, BECAUSE OIL IS UP,
OIL IS NOT UP IN SPITE OF NEW PRODUCTION!
Right on! Have you read J. H. Kunstler's book "The Long Emergency"? You will love it. He also has a weekly blog jameshowardkunstler.ty.../
Being almost 60 years old, I have lived through 3 national "energy crises" (including the current one). Although we have some more factors in play with the latest one (China, India, etc), I fear the same cyclical scenario will happen where the bubble bursts and we go straight back to pissing away our national security and wealth by importing more oil instead of becoming an energy independent nation.
Every time it happens ......... Oil prices go through the roof, the left-wing media exclaims "the sky is falling", we gear up to become energy independent with more drilling and development of alternatives, then the bottom drops out and we go right back to our old ways of importing, forgetting how much it puts our nation at risk.
My heart goes out to the people and companies so negatively affected by the current oil prices. However, if there really is a 'bubble', and it bursts, the short-term benefits will exponentially harm the long-term benefits of paying so much for energy.
My hat is off to fellow Texan T.Boone Pickens for his excellent common sense concerning energy supplies and alternatives.
Wind power is not the answer, solar power is not the answer, geothermal power is not the answer, nuclear power is not the answer, natural gas is not the answer, increased oil production is not the answer, higher energy efficiency is not the answer, better mass transportation is not the answer. (forget about biofuels completely!)
All of them COMBINED is the answer.
I am politically a right-winger and it really pains me to say this, but perhaps energy prices should be kept artificially inflated after the bubble bursts. It is the only way we are going to be able to keep the momentum going. (Ouch !!!)
Dead on. Washington is being run by a bunch of socialist idiots. With environmentalist's leading the way. The bill just pasted to do with the polar bear what a F%$*&@#$ joke. And as usual a one sided study that only works for the Animal activist. Had no real truth on the entire PB population. These idiots don't get the idea we need to develop our own oil supplies now and then work on alternative energy and perfecting it. This country has enough of its own oil to
be 90% self sufficient.
Its time to fire all Politicians and start over, with ones who will do the right thing for the country and be so concerned about winning votes for their next term. Besides if these idiots would do the right thing and turn this country around, the votes would follow.
But we have become a country of appeasers, not fighters....
There should have been import taxes put on crude when prices went below $20/barrel. Most of the independents were absorbed by the majors or forced into bankruptcy.
Unfortunately, we don't have 5 or 10 years to straighten this mess out. Whether or not this was a result of the energy meeting in Aug 2001, a decision will have to be made soon over what the primary fuel of transportation for the U.S. is going to be.
Start drilling while Washington and bear huggers are sniping at each other.
Kick OPEN the IRAQ fields and start tapping the "secret" 80Bil Barrels held back for war reparations.
Meanwhile there will be plenty of dough to be made in oil.
I sincerely hope energy costs STAY high for a long time, because it is the only way the USA is going to deal with the security issue caused by importing oil. But alas, that won't happen.
What hurts us now (and it WILL hurt us and the economy) will only make us stronger later, but the emphasis on the energy issue is mostly 'relieve the pain now'.
Can you spell short-sightedness ?
My previous reference to keeping energy costs artificially inflated after the inevitable drop was due to previous crisis observations that no one seemed to care once prices dropped. I saw many alternate-energy initiatives bite the dust, as well as many fossil fuel related industries. Pity, that set the scene for what we see today.
My good wishes to all you energy investors out there. May you continue to make a bundle on rising energy prices . Your good fortune will indicate that maybe we are FINALLY going to deal with the 800-pound gorilla in the room by using common sense.
Play UltimateMay 23 06:31 PMRead this article:
web.mit.edu/ceepr/www/...
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And thank you,
PanskepticMay 23 07:56 AMT
"And BTW, no farmer gets executive compensation like the heads of oil companies. So discussion of a windfall-profits tax for the ag sector is not in the cards. But a wpt for Big Oil does not offend my theology."
Nor mine!!
Firstly, consumption of oil is exceeding production of oil, most families have two cars, and the third world is producing cars at an alarming rate
2) the failure of the big three to introduce alternative energy cars, such as electric cars and their misguided decision to bring back muscle retro cars
3) oil is increasingly harder to find, oil drilling companies have to drill deeper below the ocean floor than ever before, and it is geting more expensive to produce in areas such as the Alberta oil sands. these and other reasons lead me to believe that the so called oil experts need to wake up to reality. What are they going to say when it goes to 200 dollars a barrel, its still a bubble? I thought 100.00 was the bubble
""prices have increased the most dramatically in the first quarter of 2008. We calculate that Index Speculators flooded the markets with $55 billion in just the first 52 trading days of this year; that's an increase in the dollar value of outstanding futures contracts of more than $1 billion per trading day."
If this is true, then there will be a massive sell off for profit taking. Once the 1st domino falls, the entire set will collapse...
The housing bubble is resulting (just wait 1-2 more years) in dirt-cheap luxury housing and investment-of-a-lifeti... opportunities in REITs, homebuilders, and housing-related junk bonds.
So, it stands to reason that the OIL BUBBLE will lead to overinvestment now followed by SUPER CHEAP ENERGY in 5 years. Expect to see a mega-bull market lead by airlines, chemicals, and consumer cyclicals!! Starting in 2013.
$10,000. invested in PBR 5 years ago would now be worth $184,555.
Doesn't seem like such a dumb investment to me.
Go find a copy of "The Doomsday Myth" and read it. Basically, the fear stems from projecting usage trends straight-line without regard for folks substituting the expensive and scarce resource with a cheaper one.
Oil will remain a viable commodity for applications where it's unique properties (or location) make it profitable to use it.
People vote with money. If the free market is allowed to work, some enterprising young fella will "strike gold" so to speak and solve the problem. No better place on earth to do that than the good old U.S. of A.
The transition, now that's the thing. Long-term inflationary plays and alternative energy speculation.
Aside from investing, you gotta actually survive the transition. Can you commute to work with gas at $10/gallon? Pay the $500/mo electric bill? Eat $1,000/mo groceries? These may be years away, but do you have enough slack to outlast the transition?
Just maybe we fast-forward to the past, reaching back to times long ago where we had local farmers and smaller towns, fresh food markets. And a lot less weekend driving.
Wouldn't that be nice?
My guess? Short-term pricing bubble in the middle of a long-term transition trend.