Engineer

How Long Will The Price of Oil Remain This Low?

It's interesting to observe the language being used in this debate. Check facts when you hear things like "demand destruction" and "falling off a cliff".

With respect to US demand destruction, petroleum product supplied is down 7% from Apr 18 08 to Nov 28 08. It appears to have bottomed in the second week of October 08 and has climbed back into the normal range since then (for now anyway). This is easily verified at the EIA's website:tonto.eia.doe.gov/dnav....

As for Japan, consumption was well down in August, but I don't quite see a Wile-E Coyote style trend going on here long-term. Consumption continues to hold steady at around 5m bpd. Check the graph on page 2 of this document, again put out by the EIA: www.eia.doe.gov/emeu/c....

To be sure, demand GROWTH will drop somewhat worldwide, but does this justify a 66% drop in value peak to date? I suppose only if the amount of debt used by speculators-gone-bust was on average 66%.

Another thing to keep in mind is that the world's major oilfields are declining at approximately 6% per year. See www.iea.org/textbase/p.... This is the natural progression of maturing oilfields. And with no exploration - doesn't pay at today's values - I can see trends reversing sooner rather than later.

Perhaps some of the oilcos are storing oil in tankers because they know an oil to $US trade right now could end up being a bum deal.

Global Financial Crisis Makes Oil a Great Hedge

It seems like there's always something missing in these analyses: there is a price point at which the producers will simply stop producing.

Why on earth would I produce oil if I'm losing money on each barrel? I'm going to shut in my wells and tell everyone to go home.

Oil is NOT getting cheaper to produce. It is getting more and more expensive to produce. The world is still dependent on it for virtually all of its transportation needs. Go short if you must, but only on a short term basis, please.

Magazine Covers as Contrarian Indicators

I used to believe in the "magazine cover theory" once upon a time too.

Then I investigated my own preconceived notions, and looked at the covers of "The Economist" going back to 2000. Interestingly, many of the covers were right! See for yourself: www.economist.com/prin....

Covers might be an indicator - they might not be.

Serendipitously, my colleague just walked into my office with a fortune cookie from lunch that advised "Don't worry about the stock market. Your investment is good."

He asked me "how often should one take investment advice from baked goods?" I had to laugh.

The Gold-Oil Ratio Approaches All-time Lows

I would argue that gold would have to rise in this current environment. I disagree with those who argue that gold has no value. Physical gold has value as a STORE of energy in that 1) it takes a discrete amount of energy to extract and refine (which is becoming more expensive incidentally), 2) it resists corrosion, 3) it is easily divisible, 4) it is recognizable worldwide and is to some extent incorruptible and 5) it is beautiful. I challenge you to find me another store of energy accessible to everyone on the planet that has these unique qualities (aside from other PMs).