Sophisse

How Bad Is the Oil Shock of 2008?

Thank you for the excellent article. Opinions are good, but opinions backed up with data are much better.

Airlines Will Profit No Matter What

Jack - found your article from Jan 6 when you recommended United Airlines at $32 and American Airlines at $13. UA is now under $10 and AMR is under $8. seekingalpha.com/artic...

Ouch.

Airlines Will Profit No Matter What

"The reality is that we have used one trillion out of more than 13 trillion barrels of oil."

You really need to back that up. Serious oil analysts will debate about new finds, how much can come online at what price over what duration, whether the Saudi fields are as large as they say, etc. But nobody (that I've found) ever says anything like 1/13.

A few years ago, people were looking at $35 oil saying that it had to come down from its highs. Now people are hoping it will drop below $100. The futures market is currently pricing 5-year oil at over $120. Plenty of people think it will drop - but not many think it will radically drop.

Personally i could expect a drop but then starting to rise again. We need these high prices in order to justify, and pay for, the large investment needed to bring new sources of oil (and/or alternatives) online.

Prices are now permanently high, at least compared with a decade ago. Airlines are forced to raise prices, which won't even make them more money, just pays for their higher costs. Higher prices make people travel less, an effect amplified by the higher costs of food and gas that leave less discretionary income people's pockets. Meanwhile the airlines are stuck with debt, losses, and a big pile of inefficient aircraft. They need to reduce staff, reduce flights, and upgrade some of their aircraft and junk the rest. All this costs new capital. Old investors are gonna lose their shirts - whatever shirts they have left!

Is Oil a Bubble? Part One

weightyworld: We can both be right! If your hydrogen technology comes along in a few years, then we have to start deploying it across the whole US (and everywhere else I guess). Think how many vehicles we have to build. Think how many fuel stations we have to convert. Think of the massive infrastructure required - power stations to produce electricity to create hydrogen, then we need to ship it around. None of this is impossible, it just takes a long time.

Is Oil a Bubble? Part One

CLH: I have no doubt that you are right about the very long term. If we were to build a transportation system based on electric cars powered by nuclear/wind/solar, once it was built it would be awesome! Or perhaps there's a better system than that. But that's a 20 year window. What do you call the time in between a bubble horizon of 6-24 months, and a wonderful future that takes 20 years to build?

I call it peak oil.

Is Oil a Bubble? Part One

I think both sides can be right, depending on what your timescale is. If oil drops from $130 to $80 and then starts rising again, the bubble proponents will be proud of their correctness, and meanwhile the peak-oil people will look back to $10 oil a decade ago and look forward to $200 or $300 oil in the future.

3 or 4 years ago, when the price of oil was up 4x to $40, you had to be a peak oil optimist to predict $80 oil. Now the peak oil pessimists are predicting a bubbleburst down to $80 oil.

To my mind, that's not a bubble. It's a long term trend with high volatility. I guess if you're a day trader, that's the same thing.