Jack Yetiv

Is There an Oil Crisis Looming?

Frankly, whether Brazil joins OPEC is not that relevant--any more than Russia's not being part of OPEC. Any oil and gas exporting country now knows that $130 oil is not the end of the world, and they will work together to keep oil there.

Jack

Is There an Oil Crisis Looming?

Agree with much of the above. Some slight differences:

1) I don't think global demand increase will be much less than 1.5 mbd, primarily because even if subsidies for personal transportation are decreased, they won't be decreased THAT much (too much unrest), and besides, the other part (ie, not the personal transporation use) of the developing economies will still need a lot of oil inputs.

2) As the above becomes more recognized and accepted--and especially if this November's report on the 400 oil fields confirms decline in the 4-5% range--it will firm up futures pricing for 2009, 2010 and 2011, and beyond, which will also help support short-term pricing.

3) Once our economy begins to recover more briskly in 2009, our decrease in consumption may moderate.

4) THIS IS THE BIG ONE: OPEC's view of oil pricing has been an "aha moment" for the oil producers in the past few years, and especially the last 12 months. OPEC (and even non-OPEC major producers like Russia) have finally realized that they were waaay overproducing a precious commodity. They have clearly adopted a new thought process on this issue, and I would NOT be surprised if they continue in the same vein.

In other words, just like they decided NOT to increase production when oil hit $130+, they may well decide to DECREASE production if oil goes below $120. This very rational behavior would put a floor on oil in the $110 to $120. They might well decrease production on the sly--without announcing it to the world.

Although less rational (because it would spur alternatives more quickly), OPEC might well decide that a new price target (eg, $140 to $150) is better for it than $120. OPEC might well reason that if the rise in oil prices from $120 to $140 were to take a year, it might be acceptably tolerated by the OECD countries without causing too much demand destruction.

In any case, even if there were some demand destruction, total net profit to OPEC of selling 35 mbd at $140 would be far far greater than selling 37 mbd (and I am exaggerating the demand destruction) at $120.

To me, OPEC is the controlling factor, and although OPEC's actions cannot be reliably predicted, there is a rational economic case to be made that OPEC will want $140 oil in 2009.

Jack

Bullish on Commodities? Consider DryShips

How do the metrics of SBLK compare to DRYS?

Bullish on Commodities? Consider DryShips

Ironman raises the same question I have:

Given the compelling metrics, what are investors seeing that is allowing this stock to be trading at a ridiculous PE of 5?

Jack Yetiv