Osterix

Cheap Crude: A Flash in the (Oil) Pan

Michael,
1) I have a different reading on the energy situation which I suggest you consider very seriously.
2) The prices of the oil companies could drop another 50% in the next six to nine months. If I were in your shoes, i would sell all my oil stocks and put half the money in TIPS (Treasury Inflation Protected Securities) and start buying long term Puts (Leaps) in the major oil companies-XOM, CVX,COP.
3) I also suggest you go to Wikepedia and look up John Maynard Keynes and Keynesian Economic Theory.
4) According to George Soros, about three months ago, most of the increase in oil price and commodities in general over the past year were do to speculation. He said this was a bubble that would burst. He was right. I am a big fan of Soros. When I grow up I want to be just like him.
5) There was a double effect. Demand for oil was rapidly increasing in Chinal and Inda, two of the most populous and fastest growing economies in the world. Now both the economies of China and India are slowing. Oil demand is also slowing in Europe and the US the other two
biggest consumers of oil in the world. This large drop in demand will last at least two or three years. After that, as you noted, production in Russia, Mexico, etc.(also dont forget Venezuela and some analysts believe Saudi Arabia is quickly approaching the limit of what it can produce) is going to drop. According to the WSJ Mexico will cease to be an oil exporter within five years. It is only after this peak oil effect starts to kick in will oil prices start to rise. I have seen estimates in the WSJ that oil will stabilize at around $50. I would not be surprised if it
stagnates at even lower prices for the next two or three years. This is a grim scenario, but if it is accurate anyone owning oil stocks is going to take a bath worse than what they have already taken.
6) Like you, i believe in Peak Oil Theory. However based on my belief in Keynesian Economic Theory, I think that for the next two, three of even four years, demand will decrease faster than production, until some of the major producers run out of oil to export. -- Oster