fatpitch2

Considering a Position in Oil Again

CLH:

On the tanker situation - I'm not saying it is true, but another explanation for oil tankers sitting around full and not unloading cargo is that whoever owns the oil thinks prices will be higher soon and has the time keep the ship anchored until this comes to pass.

Random:
With regards to new supply coming on line, yes we have new supply scheduled to come on line, but who is excited to hurry these projects along at current $40/bbl let alone $25/bbl? Projects are now, and will continue to be pushed out. Petrobras has all their deep water fields but the cost of brining it to the surface is $50+/bbl... so I can't imagine they are in a hurry to spend billions to loose $10/bbl on the markets?

According to the IEA current producing wells are being depleted (i.e. their maximum production rates are falling) at a rate of 6% - 9% annually.... That means we have to bring more than 5M+ bbl/day on-line just to keep even --- assuming that demand if flat. The latest figures I have seen from sources like the IEA still conclude that world-wide demand is going to be slightly UP in 2009 despite this raging recession we've got going on... i.e. the developing world is picking up the slack...

Considering a Position in Oil Again

Point #1:
Very interesting, I had not considered reductions in transit time.

See if I have this down:
If we assume that "supply" at the export point is constant then the temporary "oversupply" we are seeing here should diminish over a period equal to about 1x to 3x the elapsed transit time for a tanker to make it from the export point to the USA. Does anybody know how much time it takes?

Point #2:
Yeah what you said ... the US dollar has been the (I think temporary) beneficiary of the flight-to-safety and demand for dollars has been increased as they are the currenty used for settlmeent in the liquidation of much of the leverage in hedge funds and those exotic financial instruments we hear so much about... this is winding down I think ... and we have Mr. B printing paper and digital US dollars as fast as he can....

Point #3:
Yeah... I keep trying to figure out how much of the demand is discressonary and will be extingushed by consumers turning down thermostats and etc...
Offset somewhat by the fact that it now costs only half as much to fill up gas tanks.

Industrial demand for energy is clearly down and will stay down ...

I'm too stupid to figure that out....

New question:
As the price of oil slides the marginal producers have to shut down... ???

If the cost to produce a barrel of oil from the tar sands is $70 why would I go to the trouble to produce and sell only to loose $20/bbl. Indeed I have some fixed overhead I would like to support etc.. but do I not continue to do what is already being done... stop CapEx for expansion and hunker down

How much SUPPLY gets extinguished incrementally as the price of oil drops and producers throw in the towel and go home? Further... since it is much easier to take production OFF-line than it is to put it back ON-line ... will we not wake up some day after a cold snap wishing for more oil only to find that it will take producers 3 months to bring some extra production back on line?

My head hurts as bad as my commodity-over-weight portfolio....