logicalthought

It's the Oil Price, Stupid!

I'm not so sure that the guys postponing their oil projects are doing it based on $50 oil. I saw the CEO of Gulf on CNBC yesterday, and he seemed to be surprised that it wasn't at $20. Thus, I suspect that the old hands in the business are-- to be on the "safe side"-- projecting a long-term price that's somewhere south of $50. That said, I do understand that a lot of the new discoveries are very expensive to obtain, so something may have to give. But how's this for a wild card: By the time the economy recovers enough to really drive demand, higher-mileage and nat-gas powered and non-corn-derived ethanol/butenol will soak up that marginal demand, and thus keep the price of oil (in "real", not "nominal" dollars) right around where it is now.


On May 27 11:29 AM Mmarrkk wrote:

> All of this magnifies a big issue going forward:
>
> 35 projects have been delayed because prices are not high enough
> to justify the investment. So, that would imply that $50 oil isn't
> sufficient to justify projects to add new production. This implies
> that the incremental replacement costs for production are north of
> $50. This means that prices will have to seek some level above $50
> in order for supply to balance with demand, since current supply
> is declining.
>
> Those who talk about oil being at $35 for any significant length
> of time (more than 3-6 months) are delusional.

It's the Oil Price, Stupid!

Wrong. The current situation has clearly been caused by the decline in housing prices (just as it was the insane increase in housing prices that had driven the prior "pseudo-boom"). The higher oil price only hurt on the margins.

You then write: "The fall in oil prices have (sic) now helped the world economy to stabilize."

I don't know how YOU define "stabilize", but things continuing to get worse at a somewhat slower pace doesn't fit my definition of "stability". And sure, if oil were back to $150 a barrel right now things would be even worse, but they'd also be worse if corn were back to $6 a bushel.

A $40 Bottom in Oil?

Your "analysis" makes no sense. The price that an oil producer "needs" to run its government programs has nothing to do with where the price of oil will go. Assuming that worldwide demand plunges below production, the price of oil will fall until the market once again reaches a state of balance. No oil producer would "settle" for $40 if it had any control over the situation and, in fact, if demand falls off badly enough, they might pump more and more in order to make up the lost revenue, sending the price all the way down to the marginal cost of production. I'm not saying demand will necessarily evaporate to that degree; all I'm saying is that once there's a glut of oil, OPEC-- due to its own capital needs-- can kiss its pricing power goodbye.

Bush Approval Rating and Oil: Interesting Correlation

Considering Bush's ties to the oil industry, it poses a rather interesting dilemma:

"Gee, would I rather be rich, or popular?"

Nigeria: The Elephant in the Corner

My guess is that the Nigerian oil interests will take care of their "rebels" with a suitcase or two full of cash.

What China's Stock Market Implosion Means for Oil

Capped prices or not, if people are suddenly (at least for a few years) buying far fewer cars and trucks...

Oil's Gains Are Due to Fundamentals, Not Speculation

It's not just "SUVs in New Jersey"... Take a look at all the docked power boats around the Long Island Sound these days... It's great if you're a sailor!

Oil's Gains Are Due to Fundamentals, Not Speculation

I recently did some back-of-the-envelope calculations, and all those new vehicles in China can’t be taking THAT much oil vs. the decreased demand we’re going to have. They’re selling around 7 million new cars and trucks a year there. If each vehicle drives 15,000 miles and averages 25 mpg, that’s 600 gallons per car per year x 7 million = 4.2 billion gallons of additional Chinese demand for gas/year. At 28 gallons of gasoline per barrel of oil, that 150 million barrels/year of increased consumption = 411,000 barrels/day. If you double that for the rest of the developing world's users, you get around 822,000 barrels/day of increased consumption in a world that consumes around 87 million barrels/day in total, which is an increase of just .95 percent, which is probably far less than the western world's consumption will decline in a recession (not to mention what happens as the increasingly unaffordable subsidies come off in the developing world). Thus, I think oil’s now ready to come in pretty substantially.

Oil Hits $140: What Could Trigger a Reverse?

"If oil prices managed to hit a new high after the last increase, it is not surprising to see prices fail to react to the smaller boost in production."

Seriously, this is one of the stupidest things I've ever read. Or are you suggesting that there is no CUMULATIVE boost in production that will lower prices?

Donald Trump on Oil

Donald Trump is entertaining as hell, but completely full of sh*t. He happens to be a very (deliberately) funny speaker when you see him "in a room," but he generally contradicts himself (and not just "the truth in general") multiple times during the course of any given 20-30 minute speech. By the way, in contrast to what you implied above, he's done far more residential projects than commercial ones.