Oil - is it moving towards a bubble

[Midpack]

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Originally Posted by DallasGuy At some point in time (perhaps we're in that time now), we'll have to experience pain and much higher energy prices for an extended period of time so that we're forced to develop alternate energies. Once we come out the other end of that alternate energy development period, which could last 20 or 30 years or more, the price of oil will probably drop. I'm probably paranoid but much of the time I feel like there are powers out there that control things just enough to stop full scale development of alternate energies. If the price of oil gets "too high" and too many alternative energies start taking root, watch OPEC and the oil producing countries flood the market with more oil to slow alternative energy technology creation. Also I've never felt that the Bush administration was actually watching out for us but watching out more for big business. By this I mean they're not doing enough to encourage production of alternative energies. At this point I believe creating alternate energies and becoming energy independent has as much to do with our national security as attacking Iraq perceivably was.

You're right, but it's not as sinister as you might think. The price of anything is limited by (among other things), the price of alternatives. If you were selling a product with more demand than supply (like oil), and you had pricing responsibility, you (and all your counterparts) would be expected to set pricing just under viable alternatives to make the most you could for your shareholders. It wasn't that many years ago that oil companies weren't making such great profits and so it didn't pay for them to build refineries (and ironically helped put us in our current conundrum). No one felt sorry for them then (if we had, maybe they would have built refineries), so we can't blame them for taking advantage of market conditions now. I'm invested in VGENX because I believe all this. And the idea they would price oil to benefit mankind or encourage alternatives, is well...

[mb]

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Originally Posted by Independent The US uses about 7 billion barrels of crude per year. US "proved reserves" are about 23 billion barrels. "Technically recoverable" are 163 billion barrels. "Technically Unrecoverable" are 337 billion. "Oil Shale" is 2,000 billion barrels. http://www.netl.doe.gov/KeyIssues/im...pyramid_lg.jpg I don't think that the only thing between us and "hundreds of years" of supply is one president. The issue is cost (both dollars and environment). I don't know if the cost of getting that "technically recoverable" oil is $65/barrel or $100/barrel. I'm sure that it's not $30/barrel.

I agree with your conclusion. The real problem is how much is left in the ground and how much it costs to recover it.

However I think that you have mixed up a couple of numbers. The US consumes about 21M bbl/day. Second in consumption is the European Union at about 15M bb/day. The US produces 7-8M bbl/day and is third in production behind Saudi 11M bbl/day and Russia at about 10 bbl/day. (Data is from the CIA Fact book.)

We are the third leading producer in the world, pumping more that twice as much oil as Iran, Kuwait, Venezuela, or Mexico, but we still need to import more than Saudi produces. A serious case of NOT LBYM.

MB

[Patrick]

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Originally Posted by Rustic23 If you read the WSJ article you will see the problem with alternate technologies. Just about the time you crank the hybrid/hydrogen/solar you name it cars, the oil producers can reduce the price of oil to say $20 a barrel and still be making 3 to 4 times what it cost them to get it out of the ground. All of a sudden gas is back to $.50 a gallon and the guy holding a $3.00 a gallon alternate technology Vachel is going to scream.

I have a 1980 electric car that gets the equivalent of 150 mpg at today's gas prices. It uses golf cart batteries. If gas goes back to 50 cents, it'll still be cheaper for me to drive my electric than my gas car.

[Patrick]

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Originally Posted by chinaco On the bubble item. I think oil is overvalued. Not sure if it is in bubble territory yet. But it is being bid up along with gold. On replacementfuels, I think more ethanol and bio-diesel. Plus we have plenty of coal. Gasoline prices are rapidly getting to the point where some form of ethanol might make sense. DOE has hopes on switch grass. Excuse me but... F*** OPEC. I would rather spend my money putting Americans to work producing alternative fuels. Even if oil should be $50 a barrel. It is time to move away from it. If the put the two Iraq war surcharge and all of the other problems in that area of the world... It is probably $200/barrel. It is time we make a major move. So far GWB has allocated some lip service and some funds... but he is not approaching it with a sense of urgency. He went to beg the Saudi's to increase production so a Republican would get elected... you can see their response.

Just imagine if we had taken all the money and labor we've put into the Iraq debacle and spent it on alternative energy instead. We'd probably already have solution.

[Patrick]

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Originally Posted by Texarkandy I've read some stuff lately re: oil prices that a big part of the fault is financial speculators (futures & other kinds of financial paper) - Frankly, I hope a lot of them are in Europe if the bottom falls out at some point!!!! I'm also considering the argument is valid that certain producing countries taking advantage of the current world geopolitical/financial events. Thoughts on that anyone?

I heard this too. Financials suck, stocks are dropping, the dollar is falling, so people are turning to commodities as the place to put their cash. Makes sense.

[Patrick]

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Originally Posted by al_bundy looked at the commodity charts in IBD today, can't say about 2009 but for 2008 i think oil is at it's peak or very close to it and it will be mostly downhill from here my guess is around $85 come end of April

Some dude (I can't remember his name because I've seen so many of them) on TV said it's going to at lease $150 a barrel before pulling back.

[Patrick]

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Originally Posted by kjpliny I've read that a barrel of oil yields approximately 20 gallons of gasoline, and if you think about the amount of work output that 20 gallons of gas contributes to society (think transportation, chainsaws, lawn mowers, generators, farm equipment, etc.), I don't think there is an easily conceivable upper limit as to what this resource is truly worth.

OK, I'll admit it, I guess I don't understand the new math. If oil is $100/barrel and 1 barrel yields 20 gallons of gasoline, then $100/20 = $5/gallon of gas, right? Yet we're only paying about $3/gallon. Are the oil companies eating the other $2/gallon for us? :confused:

[mb]

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Originally Posted by Patrick OK, I'll admit it, I guess I don't understand the new math. If oil is $100/barrel and 1 barrel yields 20 gallons of gasoline, then $100/20 = $5/gallon of gas, right? Yet we're only paying about $3/gallon. Are the oil companies eating the other $2/gallon for us? :confused:

There is 42 gallons in a barrel.

Depending on the type of crude and the processing crude oil will yield various amounts of propane, butane, gasoline, jet fuel, diesel, fuel oil, lubricating oil, asphalt, etc.

They of course all have value.

MB

[Marquette]

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Originally Posted by Patrick OK, I'll admit it, I guess I don't understand the new math. If oil is $100/barrel and 1 barrel yields 20 gallons of gasoline, then $100/20 = $5/gallon of gas, right? Yet we're only paying about $3/gallon. Are the oil companies eating the other $2/gallon for us? :confused:

I may be wrong, but I thought oil spot price bids were going for $100 a barrel. I further thought that large processors had long-term contracts locked in at various price points under that.

[Rustic23]

Independent,
That could work, depending on the amount of oil, the reserve is a place for it, also the Government uses a lot of oil products. However, too easy, and no place for the politic ans to get their cut.

[chinaco]

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Originally Posted by Patrick Just imagine if we had taken all the money and labor we've put into the Iraq debacle and spent it on alternative energy instead. We'd probably already have solution.

I hear you. But please don't get me started. GWB... What have you done to us?

[haha]

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Originally Posted by chinaco I hear you. But please don't get me started. GWB... What have you done to us?

Though short term market and business conditions can cause a lot of volatility in oil due to its low elasticity of demand, longer term the direction is inexorably up.

Here is what one expert says. Maxwell is a guy who has been an oil industry analyst his whole life, and who has been right as rain the last 10 years or so that I have read and listeded to what he has to say.

http://www.aspo-usa.com/index.php?op...=297&Itemid=91

Ha

[Independent]

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Originally Posted by mb I agree with your conclusion. The real problem is how much is left in the ground and how much it costs to recover it. However I think that you have mixed up a couple of numbers. The US consumes about 21M bbl/day. Second in consumption is the European Union at about 15M bb/day. The US produces 7-8M bbl/day and is third in production behind Saudi 11M bbl/day and Russia at about 10 bbl/day. (Data is from the CIA Fact book.) We are the third leading producer in the world, pumping more that twice as much oil as Iran, Kuwait, Venezuela, or Mexico, but we still need to import more than Saudi produces. A serious case of NOT LBYM. MB

I can certainly agree with the LBYM comment.

Regarding numbers, I don't see an inconsistency. You have 21 million barrels a day. I have 7 billion barrels a year. 21 x 365 = 7,665. I was rounding down to be conservative.

[Independent]

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Originally Posted by Rustic23 Independent, That could work, depending on the amount of oil, the reserve is a place for it, also the Government uses a lot of oil products. However, too easy, and no place for the politic ans to get their cut.

I can agree with your comment on not a political winner. However, I haven't even seen this mentioned by someone in a think tank or a university. (Of course, I can't claim to read a lot on this.)

[Grizz]

I expect that China, India, and other up and comers are sooner or later going to eclipse the current oil usage of North America. Why wouldn't they? There is somewhere near a bazillion of them and they all want "stuff" just like we want "stuff".

Last century belonged to us in every way. This one will be theirs.

[ladelfina]

Funny how (I just skimmed most of these posts so forgive me but) I think that out of just about everyone here with all their varying opinions no one has remarked on the "high" price of oil being correlated to the super LOW dollar.

Where I am in euro terms, gas really hasn't gone up.. it's been a pretty stable (high) price for a good long while; what's gone way up is the number of dollars I need to convert to buy a euro's worth of gas. IF the dollar were to recover (which I am skeptical about anytime soon).. oil would magically "go down" in price!!!

All your base are belong to [??].


Oil is priced in dollars? Dollars are priced in oil.

chinaco: It's GWB but also many before him that led the supply-siders to run things, so no one trusts the dollar. The dollar = shady credit and unsustainable debt where it didn't before. Cheney: "deficits don't matter". If you are buying petroleum or anything else with dollars.. they do matter, apparently.

[mb]

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Originally Posted by Independent I can certainly agree with the LBYM comment. Regarding numbers, I don't see an inconsistency. You have 21 million barrels a day. I have 7 billion barrels a year. 21 x 365 = 7,665. I was rounding down to be conservative.

Oops, didn't notice your units. I'm used to seeing bbl/day, not bbl/year, and thought that you switched production and consumption.

[chinaco]

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Originally Posted by haha Though short term market and business conditions can cause a lot of volatility in oil due to its low elasticity of demand, longer term the direction is inexorably up. Here is what one expert says. Maxwell is a guy who has been an oil industry analyst his whole life, and who has been right as rain the last 10 years or so that I have read and listeded to what he has to say. http://www.aspo-usa.com/index.php?op...=297&Itemid=91 Ha

Understand. Oil is being bid up by speculators and demand.

The GWB rant was about his whole term... Iraq (and its lower output) is his only contribution to the current price.

I had more vitriol to spew but erased it... did not want to start a political battle.

[Rustic23]

Putting a floor under the cost of alternative fuels IMO is like putting a floor under the price of milk or butter... oh yea... we do that already.

[haha]

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Originally Posted by Rustic23 Putting a floor under the cost of alternative fuels IMO is like putting a floor under the price of milk or butter... oh yea... we do that already.

Isn't he suggesting that we put price supports under crude and refined products, not alternate energy?

I don't thinnk alternate energy is at all likely to get too cheap.

Ha