Commodity Bubble Proponent

Crudomania Is Over

Nice piece...a couple of comments

1. Much of the run-up was due to highly leveraged "investments" in oil futures that have now gone the other way.

As for that 86 million barrels/day of demand, it never really existed b/c much of that stuff was hidden in oil tankers and floating storage facilities that were recently constructed. I can point you to plenty of articles about how Iran was storing millions of barrels of oil in tankers in June, and how Singapore's floating storage tanks were full, etc. There is a TON of oil out there that no one wants.

2. Oil will not quickly reverse b/c now we have millions of barrels of spare capacity in OPEC countries (almost 5 million of spare capacity-- 1.5 million before the OPEC cuts +4.2 million of supply cuts). Demand has collapsed dramatically and is not likely to just come back on a whim. Dramatic changes are occuring globally in terms of how we use energy that will permanently affect demand (just as in the 1980s).

3. As more oil equipment gets built, the cost of developing new oil fields will go down. Much of the rise in the cost of finding new oil was due to the fact that oil rig prices tripled in 2 years. These rigs suddenly didnt become more valuable or hard to put together. Oil service companies will adjust to that economic reality and construct new oil equipment at a breakneck speed.

4. Alternative energy investments while curtailed are still ongoing due to climate change and other political agendas. As second generation biofuels come into play that aren't corn/sugar and are more sustainable, this will create supply side pressure on oil (even by historical standards, $50 oil is still really really expensive).

Whenever people start talking about the long term outlook for oil (greater than 5-10 years), remember that investments in other forms of energy will become commercialized during this period too as Obama and the democrats are not going to let this go

Oil Won't Stay Down for Long

Davy,

want to talk about your earlier predictions about how oil wasn't a bubble?

Once again, you are wrong.

Readers: If you followed this guy's advice over the past year, you'd be down 65% over the last 6 months, just like Boone Pickens.

This is just another commodity bubble guy who wishes for the good old days of $200 oil and $4 copper.