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Why Oil Won't Penetrate $150/Barrel

Commodity Bubble Proponent

Really? Where are those numbers? I look at a lot of numbers, but I have never seen inventories above average, dude.

Look, dude: We are talking light sweet stuff, cause that's what we are trading.

NYMEX light sweet crude is a basket of north american sweet grades.
The important installation for inventories for this grade is Cushing, OK.

Last year at this time we had 27.4 million barrels, this year we have 20.6 million barrels. Now consider that the dollar of now doesn't buy a last year's dollar and you are where we are right now. There is nothing magical about 130$ oil!

On top of that there was this huge story in the Journal this week, about the IEA cutting its long term supply forecast. DO YOU UNDERSTAND WHAT THAT MEANS? THAT MEANS PEAK OIL IS BECOMING SLOWLY OFFICIAL!

Let's be optimistic. Let's say we are able to produce 95 million barrels 15 years from now. Assume that emerging markets rate of increase of oil consumption is half of what is now.(Still a lot!) I don't know, but if you ask me: It's gonna get close. The thing is don't think we are gonna produce 95 million barrels a day.

Why Oil Won't Penetrate $150/Barrel

- The run up in oil this week was due to commercial hedgers buying back their shorts. You don't get a +5$ day without massive short covering.

- It doesn't make sense, to say that demand doesn't outstrip supply. When you look over the last 3 months, it may be true. But important is, how things work out over the year. Every spring inventories build up and fall until the end of the year. In case, you didn't notice: inventories are lower than last year. (Cushing in particular)

- Can oil fall 20 or 25 bucks? Absolutely. Is it likely to cost less than a hundred bucks a barrel over a long period of time, hardly.

- Even the IEA (usually behind the curve) is going to slash their supply forecast significantly. They finally figured out, that fields have a limited life span.

- The sweet grades are dying. Even if demand was flat, they would rise in price.

- Western refining infrastructure is old and needs the sweet grades. Environmental legislation demands less and less sulfur in fuels. Old refineries need high quality crude to meet those demands.

- Surprise! Cars and trucks in emerging markets run on gas and diesel, too! Guess what, they can even afford it, since they have huge surpluses and private savings rates.

- Is the oil market a victim of 'irrational exuberance'? I could make the point, that the last 50 years in the oil market were a poster child for 'irrational exuberance'. Is it normal, that the commodity, that makes our civilization possible, is cheap? It is not. It was only made possible by luck. The luck being, that vast and easily produceable fields were discovered decades ago. Imagine, if those fields have not been discovered, oil would have always been expensive.

- Now finally the markets gets, that those fields are in serious decline and bringing new capacity online takes time and is exceedingly expensive. Furthermore, our government (and I include Congress in this) is completely incompetent (over decades by the way). They practically accuse oil executives of stealing from the people, when it is themselves, who hinder the oil industry (which is paying a large large large amount of taxes) in every way possible to maintain production levels. Why can Brazil find and develop huge finds off their coast and we can not? How humiliating is that? Imagine, what a find like this would do to our country? Just to remind people - 85% of our coast line is off limits for drilling and have not been explored.

Here is an interesting article:

online.wsj.com/article...

- Yes, I read the EIA study, that drilling in ANWR would only take 75 cents off the barrel, BUT PAYING 300$ PER BARREL AND NOT GETTING ANY BARREL AT ALL ARE TWO DIFFERENT THINGS!

- Conservation: Is it normal that average joes drive a V8, when average joes in other countries make it with a 1.6l 4 cylinder engine? It is not. It is not cool anymore, it is just waste.

- They build a hundred major airports in China and I don't think they are going to use gliders. Face it people: The times, when America dominated the world economy are over. Just because we use 400.000 barrels a day less, doesn't mean the price of oil is collapsing.