Indyphil's Comments

How Low Can Oil Go?

Wed, 13 Aug 2008 10:12:55 -0400

"despite the sharp rise in the price of oil this year US oil demand is actually down"

I think you need to revisit that bullet item. What you said is true, but you shouldnt use the words like "despite" or "actually" as if this relationship is somehow abnormal.

GM May Hit $200 Before Oil Does

Tue, 05 Aug 2008 11:49:20 -0400

I think there is some confusion about the term Peak oil here.

I think the article means oil has peaked (refering to the price of oil)

"peak oil" as cjwirth defines it means production has peaked and we are in a phase of declining availability.

Economics of Oil Futures Trading, Part I

Tue, 17 Jun 2008 08:11:50 -0400

I look forward to part II. Thanks for posting this article. I have read some of your others and I got the impression before that you didnt believe in the fundamentals driving the oil market. Perhaps I mis-understood.

Perhaps the question to address is not so much the overall relationship between futures and market fundamentals, but how much volatility the speculators bring to the table. Does less trading volume = slower changes and less "noise".

Crude Report Stumps Analysts

Thu, 12 Jun 2008 09:41:56 -0400

You nailed it Jack. And Saildog nailed the reason for declining Crude Stocks. Refiners are slowing down, because gas stocks are rising, demand for US Gasoline is falling (slightly). Why would a refiner pay his guys overtime to work their butts off against that backdrop?

But even though refiners are slowing down, the supply of oil (in the form of imports) is slowing even faster.

As Saildog puts it, Ven/Mexico oil is in serious decline, so we are forced to buy more from further away across the Atlantic. That takes more tankers (something like a 5 to 1 ratio or higher - compared to gulf suppliers) to achieve the same flow. Those tankers dont exsist - so instead we just get less of the stuff.

In addition those suppliers are already selling everything they have to Europe and Asia, so we must compete for that oil - hence pressure driving crude prices higher.

The concept of Big oil fudging the stock numbers is entertaining. But the SEC strictly checks the books. The risks are too great. If Big oil really had that much power, why did they spend a decade languishing in sub $20 oil and flirting with banckruptcy?

Whats interesting to note, is that the EIA news last week (Wed June 4th) said much the same thing as the news Yesterday - June 11th. Yet the markets response was very different. Last week the market responded to the increase in gasoline stocks and weakening demand, and overlooked the crude picture. Then Morgan Stanley put them straight with a story about tanker traffic.

This week you could argue weve got noise from folks moving money around responding to the dollars movement.

Volatility: It's the Oil, Stupid

Fri, 30 May 2008 10:59:48 -0400

My personal opinion is that we were overpriced at $135, the market is taking a breather after we saw demand destruction in the US. We know demand lags price considerably. I think youve got to have some big stones to go long for the next few weeks.

We really need to watch Chindian demand to understand the longer term fundamentals, and of course not ignor what Al-Naimi and friends are up to. More personal opinion but I think folks are wising up to the Saudi bluff. 12Mbpd capacity? Sure, and theres this bridge for sale too. 250 Billion barrels of 2P reserves? Hmmmm....

Is This Oil Bubble Going to Deflate?

Thu, 29 May 2008 10:02:11 -0400

What we must remember is that the Price MUST rise until supply matches demand. The demand destruction was neccessary to avoid inventory falling to zero. Its all well and good to point that demand has fallen slighty but the price has doubled in a year, but that misses the overall point. I think this article is helpful by pointing out the in-elasticity of demand, and the long lag times, but ultimatley the demand will need to fall more - and more and more - GLOBALLY to maintian current prices.

I expect the market is taking a breather on this news of demand destruction but will continue to rise as developing countries keep moving. When the Chindia demand stops rising (maybe when they quit subsidizing the stuff) thats when you can call a ceiling.

ETF STER - you are right to point out the % argument.
China consumes over 7mbpd. The 3rd highest behind Japan and USA - they may have surpassed Japan by now these are rough numbers based on 07 figures.

USA consumes about 12mbd, so China's 3.7% increase on a 7mbpd rate, washes away a 0.7% decrease on a 12mbpd habit.

You get the idea. Chindia is in charge now. Their tax policy (or subsidies) are in the driving seat.

Who's Really to Blame for High Gas Prices?

Thu, 29 May 2008 09:34:38 -0400

Brian
While a new refinery hasnt been built in the US the exsisting ones have expanded nicely. Why build a new one - jump through permitting hoops if you can expand the ones you have? Refinery utilization is in the economic range ~80% telling us we have just the right amount. It gets tight when we get hurricanes but otherwise we are right in the ballpark for refinery capacity. Refinery margins are tight further proof that there is plenty of competition.

This is an oil problem, it has little to do with refining. The only thing refiners have to work on is investing in cokers to enable them to make the most of heavier crudes.

Who's Really to Blame for Rising Oil?

Mon, 12 May 2008 08:25:37 -0400

I disagree with the article
"The energy sector is finding the max price that consumers are willing to pay for a gallon of gasoline. Record profits of oil companies give them no incentive or evidence to halt gasoline price hikes."

The price of gasoline at the pump is basically wholesale + tax + tiny margin for the owner of the store.
Wholesale price is basically crude oil, + processing cost + refiners margin.

There is every incentive for an oil company to reduce the price of its wholesale gas - TO COMPETE!

Lets say "the bubble bursts" or whatever and the price of oil starts to fall. The author of this article suggests that the price of gassoline wont come down because they have discovered that we are "willing" to pay $3.70 a gallon or more for gas.
But with lower raw materials it only takes one company to price itself 10 cents less than the competition and every consumer will rush to buy it. the fact is there is more than one oil company and they must compete for the business. The fact that margins are so slim is evidence that there is still plenty of competition.

The price of oil is not set by Exxon, BP or shell. Its set by Global factors, and the majority of the worlds remaining oil is owned not by private companies but by national oil interests. The traders know this, look at the long term contracts. Why is it so hard to face the truth? When you point the finger of blame three fingers point back at you.

Oh and the "lets not buy gas on one day" ideas.
Boy I still get a chuckle from those! Skipping your gas purchase on Sunday only to buy more on Monday - yeah a real revolution!

How Much Worse Can It Get For Oil?

Wed, 07 May 2008 21:23:38 -0400

Plan for the worst and hope for the best.
Maybe that wont make you much money, but if we blame this on the speculative bubble, or the weak dollar being the sole cause of this, we ignor the fundamentals of peak oil. By ignoring the fundamentals and finding excuses to keep doing business as usual - the pain will be worse.

Ive read Twighlight in the desert, great book - written almost 4 years ago - before the dollar dived off a cliff. My opinion is that the supply/demand fundamentals coupled
For those that think its just the weak dollar: Prices are at record levels regardless of currency. Euro's, Australian dollars. Its doesnt matter where you are in the world, oil is expensive.

The Shocking Reality of High Gas Prices

Wed, 07 May 2008 21:04:10 -0400

Ted Kennedy wasnt the only one blocking the wind farm, Mitt Romney was right there with him. Both parties representatives and politicians are equally guilty.

How does the author explain the dollar gaining 2% in april, while oil rose 10%? Sure its about the weak dollar, keep telling yourself that and that way you wont feel so bad filling your SUV?

Any serious student of the situation knows that the dollar value is important, but also isnt the only variable that sets the price of oil and gasoline.

Our Energy Efficient Economy Can Handle $112 Oil

Mon, 05 May 2008 11:02:01 -0400

Joules, probably the most intelligent comment yet.
A service based economy is more efficient than a manufacturing based economy. The problem with his comparisons to previous crisis, is that we are not finished with the current crisis. In the 1970's and the 1980's high energy prices were a temporary problem, solved by OPEC's ability (and willingness) to simply open the spigot.

"The Goldilocks economy of the 21st Century just keeps humming along"

Wow, what planet is this guy on? And which box of cereal did his PhD come in?