$300/Barrel Oil Is Coming - Barron's Interview 70 comments
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Weeden & Co. energy analyst Charles Maxwell says $300/barrel oil is on the way - and will hit us by 2015. In an interview with Barron's, Maxwell highlights oil's uniqueness:
When it begins to disappear, there really aren't any good substitutes, which there are for so many other commodities. It's that lack of substitutes that forces the pricing mechanism to balance supply and demand.
Before you scoff at the notion, note that Maxwell correctly predicted the recent oil spike (well, actually, he underestimated its magnitude) four years ago.
Key arguments:
- Oil's alternatives - coal and nuclear energy - are not viable replacements, the former because we lack the technology to burn it cleanly, and the latter because political wrangling has held up its development. This lack makes the U.S. vulnerable.
- Political instability will keep prices elevated and resource nationalism will continue to stop oil-rich nations from opening up their reserves.
- New oil fields tend to be lower-yield and in more remote locations.
- Record world economic expansion has been predicated on the use of oil as the primary energy source. The only thing that will ultimately slow that growth is higher prices.
Maxwell likes tar-sands stocks such as Suncor Energy (SU) and EnCana (ECA). Aside from that, new yet-undiscovered technologies will make a killing for those smart enough to recognize them early:
There are going to be so many new companies and so many new technologies that it boggles my mind at the thought of identifying all of them. There are going to be a lot of new industries coming in and wonderful opportunities in the stock market.
:::::::::::::::::::::::::
- While not as extreme as Mr. Maxwell, Richard Shaw thinks long-term price trends make buying the dips a winning strategy.
- Not suggesting this will happen, Bespoke ponders what would be if the 'oil bubble' burst at a magnitude similar to that of the dot-com bubble or the homebuilders bubble: "For oil to match the Nasdaq crash, it would get all the way down to $32.06 by February 1st, 2011. For it to match the homebuilder crash, oil would fall to $31.40 by June 27th, 2011."
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This article has 70 comments:
predictions like this are worth less than the paper they're printed on.
I would love to know what is going to happen 7 hours from now, much less 7 years from now !
Silly to ponder these things, when we have the treacherous, manipulated stock market to deal with on a much more immediate basis .
www.economist.com/spec...
My call, Oil $3,000 barrel by 2015!
But I can say that oil is getting heavier.....we are going to deeper waters, taking on more expensive projects....and exporting countries are all cannabolizing their exports with growing internal demand....and/or declining production aside from a few countries.
in 5-7 yrs....$300 is easily doable.
The deep sea oil fields will be getting smaller and smaller....mexico will be a net importer of oil....all new hybrids or NG cars will not be phased in to make up the lost amount of oil...etc.etc.etc
wallastoninvestments.c.../
Can we start using some other, more stable currency to price the oil in? Say... gold? Because the US government has obviously given up on the value of the dollar. And with the enormous budget deficits, never ending wars, and probably even more to come if McCain wins (as he probably will) dollar is going DOWN long term (although I am betting on it short term).
Otherwise these statements mean nothing. Oil could be $3,000 in 2015, and still be 100 euros, or 1000 CNY.
Nicola - Exactly! Thanks for clarifying.
Population growth is another factor the article did not mention. At current rates, the world pop.is growing by 1 billion people every 13 years. That is obviously bullish for oil and commodities in general. This recent dollar rise/commodity drop is a "golden" buying opportunity! Too bad I have no cash!
> jack
Safe country assets. Agree, Oil is here to stay for a long time.
Chinese and Indians won't go back to bicycles, especially in the monsoon and winter seasons!
$300/bbl oil is quite possible and likely before 2015. Here are two good reasons.
1. Supply -- production is falling in Mexico, USA, Europe and Most of the Middle East. Increases from Brazil, Africa and polar regions are not enough to offset the losses. Russia is a wild card, but it is likely that their production is also falling. No amount of drilling can reverse geologically determined depletion. Who cares if you can get production from a stripper well from 10 to 20 barrels per day. The world needs 85,000,000 barrels per day!!
Also, don't count on Windmills and solar to save you. They don't produce a liquid fuel. Massive penetration of electric vehicles is required first. This will take at least a decade to accomplish.
Finally, natural gas in North America is neither plentiful nor available for transportation fuel. The nat gas producers routinely drill wells that deplete 20% per year or more. North America is on a furious treadmill to keep the gas flowing. Forget about LNG either. There are only a few terminals to handle the stuff and NIMBY is blocking the construction of new ones.
2. Demand -- Despite $4.00/gal gasoline, demand is still rising in Asia and the Middle East. In fact, prices are quite low in the Middle East so demand will continue to explode! The Saudi's are going to supply their own market first! Worry about the USA secord or maybe even third.
Even in America demand has only weakened from 22,000,000 bbls per day to about 21,000,000 bbls per day. This is in spite of $4.00gal gasoline. It will take $8.00/gal or $300/bbl to really knock out the demand.
Nikola, I second that opinion. The dollar is toast long-term and there simply aren't enough deficit hawks in the US to prevent it from happening. We're addicted to both oil and debt, and it is possible that both could be squeezed hard in the coming years. Don't expect the baby boomers to give up anything to help the country make the transition. We'll probably blame outsiders for our predicament and start some wars.
As far as investing is concerned, oil is a fairly risky investment at $100. Remember the early 80's? The demographics and oil statistics all pointed to peak oil at the time. All the books and articles said the peak had arrived and then WHAM!, the oil investors got burned, as demand finally plummeted at the same time new supply arrived in response to the high prices. Oil didn't recover from that shocking drop for two decades. Remember... if the president decided to change the interstate speed limit back to 55 mph, demand would drop 5-10% overnight.
If McCain wins, I might invest more in oil and defense stocks, as war against somebody will be inevitable, along with the resulting currency devaluation and oil price shocks. Long term, though, I'm looking at Asia, Europe, and Latin America.
If Obama wins, oil could drop in response to the reduced geopolitical risk and the dollar could stabilize as balanced budgets actually seem possible someday. In this case, I would make a contrarian move into the same Asian, European, and Latin American equities as above, but I might get lower prices on them as money flows back into the U.S.
To answer your question, there is a public firm highly active in the Bakken oil area.
Northern Oil & Gas, Inc. (NOG), www.northernoil.com/ 52wk Range: $4.27 - $16.40, currently at $6.16/sh.
I do own some of this stock.
famos, in Montana
Trains, planes, ships, trucks, cars, etc. currently all run on some form of diesel. The key word is "diesel." Consequently, the near term solution is clean-burning diesel. The next key word is "coal." We can currently make clean diesel from coal,
(a 200 year USA resource).
Hitler fueled his military machine by this process 64 years ago because of the very same circumstance, i.e. Germany was cut off from oil.
I'm not going to paint the whole picture for you, research it yourself. practicability will dictate and win out in the end.
famos
Yes, we've seen the price of coal lately and it is still the cheapest energy commodity. And political parties aside, we didn't call it clean coal, we called it clean diesel. Two different entities by definition.
By the way, we certainly, don't care who you vote for.
famos, in Montana
When you are talking slave labor, your talking man power. How much does slave labor/man power enter into the production of oil/diesel. Increase the compensation of labor in the cost equation of crude oil to fuel and it will not justify the price the U.S. pays for a barrel of oil. Fear of obtainable supply it what dictates the price of crude oil, i.e. "scarcity determines value." Economics, 101.
famos
Come McCain we're going full-on National Socialism.
Human labor (energy)? Did you swim over to China/Far East to get that computer that your using? Or did you walk to the manufacturer, if it was produced in this country?
The answer, if by plane, ship, truck FedEx/UPS, etc. some form of diesel was used. Stop the diesel/transportation and you'll go hungry, cold and probably be killed in the riots.
I agree with a lot of alternative energy advocates, but the immediate solution is use our coal to supply our most important transportation fuel. Everything is already existing and in place. Including the coal.
Let's not hide from the problem. Let's solve it. Right now.
famos
Sep 08 01:12 PMNikola - Well if you applied our model for health care to housing it would look something like this: free housing would be declared a social imperative; the government would nationalize the entire US housing stock and private housing would be made illegal; every American would be issued a "housing insurance number" and bureaucrats would dole out housing according to need. Since the system would produce no revenue, no new housing would be built and each year Americans would get less and less housing, resulting heavily rationing and long wait lists (sort of like the situation the old USSR as I understand it). I don't think you are anywhere near that yet down there!
----------------------...
Ha, exactly. I experienced it myself. 3 generations living in the same 50 years old 2-room flat. However, after the fall of the USSR, private healthcare and housing were allowed to co-exist with public and it works very well this way. Very poor people have some protection (via public system) and others buy at the market.
I give up. Everybody shoot themselves, while you can still afford a bullet.
famos
P.S. In the mean time I'll drive your dead bodies to the diminishing landfill in my clean-diesel car powered by waste animal fat/by products by the new Tyson Foods and Syntroleum Corporation plant in Geismar, Louisiana.
This plant is a 50:50 partnership between Tyson and Syntroleum to convert low grade, inedible fats and greases into renewable transportation fuels for the military and civilian markets.
Good Americans, don't give up so easy.
famos
"abolish the Fed, remove the Bush and Saudi petro-family from power and start caring about the middle class. Then invest a trillion in green energy, not war.Oil will go to $30 if the above happen."
1) "abolish the Fed" - that one I am actually in favor of. Get back on the gold standard. Our currency is subjectively manipulable, and it's just a matter of who knows who and needs help in the financial community. Not only unfair...but unnecessary and ruinous economically to be doing economics this way!
2) Remove the Bush and Saudi petro family? What are you on? When we dug to the bottom of the Iraq oil dealing, we found that the profiteers were not the Bush family, but UN officials and their cronies! Try googling "Iraq Food for Oil scandal". Then come back and talk to me about the Bush family. The Saudis? Yeah, I agree we need to stop kissing foreign oil butt. And that's why I back the GOP ticket this November and "drill here, drill now"!!
3) Caring about the middle class? The Dems are gonna tax the middle class to high heaven. Like they always do. Keep in mind, this is a function of who controls Congress, not just who sits in the Oval Office. Take the blinders off: Bush cut taxes, and the cut went to almost *everyone* - not just the elite. Exhibit # 1: dividend tax down to 15% - over 50% of Americans have dividend-yielding investments. Obama wants to jack that rate back up.
4) 1 trillion invested in green energy yields exactly what? Show us the study that yields your number of $30/barrel for that investment. The quickest way back to $80/barrel (we won't ever see $30 again...supply just isn't as easy to get to as it used to be - drillers tell us they need $70/barrel to break even) is to drill, drill, drill!!
No Whammies!,
2) Are you using the sins of another party/organization to justify the sins of the Bush family? What are we getting out of Iraq again?
3) Given our huge deficits, the Bush tax cuts were nothing loans and bribes. They did nothing but shifted more of the tax burden to the middle class. Most Americans don't derive their income from dividend yields like the rich do. In fact, the middle class pays more of its wealth to taxes than do the rich because of the tax code. Neither party, especially Republicans, works for the middle class.
4) Necessity is the mother of invention. If mankind was too scared of new discoveries, we'd be living in caves. Oh yes, drill now and wait 10+ years for any meaningful results. By that time, $30/barrel will be a pipe dream.
Settle.
www.mathaba.net/rss/in...
we are working on this.
www.prosefights.org/nm...
With the decrease in the price of oil, alternative energy stocks have also taken a beating. Sales will decrease and funding will also. Why bother with renewables, there is plenty of OIL.
Make up your minds, if its a big conspiracy and it has been uncovered, then oil prices will continue their slide and all of the Alt. Energy research will die due to lack of interest and funding. Bye bye wind and solar, come on lets all go with Hummers.
If it is supply and demand, then a permanent Global Recession is the only solution. We will suffer with the rest.
We blame those nations who subidize gasoline for their citizens because it hurts our over per capita usage. We subsidize, ethanol, cotton, sugar and a variety of farm products but its okay for us because we deserve it and they don't.
This attitude deserves whatever it gets. The world is no longer our pie, get used to it.
I believe one of the reasons for Nuke is the same.
Not to say they have other designs (I see the point on the weapons grade) but put yourself in their shoes. If you had a commidity that was limited and cannot be replaced what would you do to get the most of that product?
The real story behind the scenes and reasons are generally not followed by the press or reported by most Governments. If you have a dispute find who benefits financially from that dispute and you will find the culprit(s). Who benefits when oil spikes the Texas Oilman and/or the Iranian when they have a public exchange of threats?
However war is like rolling a bolling ball downhill. You only control letting the ball go and once it starts it's very hard to stop or know where it ends up going. We slowed that ball in Anbar but it was not cheap.
If one calls this poster a bleeding heart I did my combat tour in Iraq mostly outside of the wire. I am not tough with other people's kids.
I don't think so. Obama is more likely than McCain to escalate tensions and wage mega-war. The Dems are always scared of appearing soft. FDR, Truman, JFK, LBJ were war presidents, JFK threatening nuclear war with Russia. Israel has the option of attacking Iran and dragging us along, no matter who the next POTUS is. Personally, on behalf of good government and some creative destruction, I like President Palin.
On Sep 08 09:50 PM Prince of Heck wrote:
> Big Money
> No Whammies!,
>
> 2) Are you using the sins of another party/organization to justify
> the sins of the Bush family? What are we getting out of Iraq again?
>
>
> 3) Given our huge deficits, the Bush tax cuts were nothing loans
> and bribes. They did nothing but shifted more of the tax burden
> to the middle class. Most Americans don't derive their income from
> dividend yields like the rich do. In fact, the middle class pays
> more of its wealth to taxes than do the rich because of the tax code.
> Neither party, especially Republicans, works for the middle class.
>
>
> 4) Necessity is the mother of invention. If mankind was too scared
> of new discoveries, we'd be living in caves. Oh yes, drill now and
> wait 10+ years for any meaningful results. By that time, $30/barrel
> will be a pipe dream.
No Whammies!
Bush hater this, bush hater that. Try dealing from a logical point of view. Where exactly does the U.S. government get that
"tax cut" money from when its budget is deeply in the red? Oh, no better candidate than you and me, the U.S. taxpayers. I find it fascinating from party hacks their joy of voting against their own self-interest.
On Sep 09 01:26 PM Prince of Heck wrote:
> Big Money
> No Whammies!
>
> Bush hater this, bush hater that. Try dealing from a logical point
> of view. Where exactly does the U.S. government get that
> "tax cut" money from when its budget is deeply in the red? Oh, no
> better candidate than you and me, the U.S. taxpayers. I find it
> fascinating from party hacks their joy of voting against their own
> self-interest.
No Whammies!
Speaking of ignorance, why am not surprised that you're a fan of "voodoo economics", aka Reaganomics/supply side economics. Supply siders could never prove that tax cuts would spur business investment nor create more federal revenues. Businesses invest because consumers spend, not vice versa. To make matters worse, spending cuts are not even enacted to offset those revenue-depleting tax cuts. Hence, the budget deficit continues to grow, and we have to shift more of our resources towards servicing the debt.
You're darned right people like me invest and save. We have to make up for the juvenile and irresponsible attitudes of partisan hacks like you who continue to party endlessly.
Back in the late 1990's, it cost about $4/bbl to get oil out of Saudi Arabia. It's obviously more now, but this unlimited demand by SE Asia argument is insane. There is no way that countries with per capital incomes of less than $1000/year will consume the stuff at $300/bbl. 42 gallons = 1 bbl. I doubt if the average Chinese citizen would stake his yearly pay on the privilege of driving a car to work for six weeks.
Somehow, the humans on this planet survived for 10 million years (or 5000 years, depending on how literally you take the bible) without consuming a couple hundred barrels of per capita each per year. We're smart. I'm sure we'll figure something else out. My money is on the 1.21 Jigawatt flux capacitor from BTTF.
People are just going to get used to colder winters and hot summers.
The only way we got up to 20mil barrels a day was due to easy credit. More people were able to afford and drive cars more. Now more people will be walking, taking mass transit and riding bikes. There isn't going to be an apocalypse, it will just be basic economics. I can be a mindless driver myself. But I know I could drive 50% less than I do if I needed to. Having a fridge full of yummy food and heating and cooling my home are far more important than taking 20 trips a day to buy things I don't need because I am bored.
Look at what is happening right now... Oil is dropping like a brick and so is our economy. Normally oil becoming cheaper would be helpful. The reason it isn't helpful is because it is still too expensive to help our sickly economy gain any ground. If oil went down to $30/barrel tomorrow, it would raise the economy from the dead like a defibrillator. But it would slowly descend and end up at point that makes economical sense. There is logic to all of this.
Honestly, if oil stays above $100 for a year, it would bleed us drier than we are. It might, but I doubt it.
The world uses 87mil barrels a day, right? We use 20mil of that. Well, we have been using less. But the argument is that world will use more. Not exactly. The worlds interdependence on us is tightly woven. We will see relative drops in the rest of the world's use.
If the world could truly afford $100 oil, then OPEC would put the floor in, but in all likelihood they are not.
And yes I am short oil right now. At least until it hits $80.