jayjayjay1212

Oil: A Slippery Slope Ahead?

Interesting point about OPEC's inherent weakness. Indeed, the 'unfriendly regimes' (Iran and Venezuela and non-OPEC Russia) need very high oil prices to fund their expenses. They are caught in a prisoner's dilemma and will probably not implement OPEC's suggested production cuts.

Also, very interesting about the renting of tankers to store unbought oil. I did not know that at all, and shows how weak demand really is!

Where I strongly disagree and where I find you lack adequate research is for your Oil Sands argument. Let's set something clear... Cash costs for Oil Sands ARE NOT 80$ per barrel. You mention Canadian Oil Sands Trust. Had you read their quarterly report (biz.yahoo.com/cnw/0810...) you would see their cash costs per barrel are at 35$ and funding for their investment projects are 10$ per barrel, meaning they are profitable and self-sufficient at 45$ a barrel (more or less). Suncor and other oil sands companies also have cash costs in the low 30s. Low natural gas prices and weaker demand for oil workers will actually make that cost go down.

Oil sands in Canada are often misunderstood. Some 'unconventional projects' indeed might have marginal costs of 80$ a barrel, but these have already been shelved. Most active fields actually have quite low cash costs, so the barrel would still need to come down a lot in order to cause important losses.

Whether the barrel will go as low as 30-35$ is another question to ask, and of course I do not have the answer... But I guess if speculating sent the barrel to 147, speculating can equally send it to 30. Just by listening to the trader sentiment (on Fast Money) on oil, it is insanely bearish.

Anyways the market is setting itself up for a supply squeeze in 5 years that will send oil prices back up again.

Conclusion: Neutral/Bearish short term and Bullish long term

Disclaimer: I own Suncor shares