Oil - is it moving towards a bubble

[chinaco]

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]

Charlie Maxwell

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?option=com_content&task=view&id=297&Itemid=91

Ha

 

[Independent]

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]

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]

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]

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?option=com_content&task=view&id=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]

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

 

[Rustic23]

Ha
You are right, however, I see the discussion as oil from wells, vs all other forms of energy. So in my world shale oil or tar sands are alternate energy. Now if we were talking global warming, and production of CO2 then I might take a different bent. Here, however, I felt the conversation was more energy independence. Alternate forms such as solar or wind, compete with shale and tar sands. In ref. to WSJ article the alternatives all cost more than what the current producers cost to produce crude. Therefore, investors are hesitant to invest. Making gas and diesel from coal is a technology that has been around for a long time. i.e. Germany used it in WWII. However, it can not compete with crude from the ground in cost. Investors are not going to spend billions for gasification coal plants and then have the Arab nations reducing the price of a barrel of oil to $30.

 

[ladelfina]

Commodities index up 7-8% over two years for non-dollar holders.. For dollar holders, up 25%. Red line is when Bush took office.

 

[chinaco]

Commodities index up 7-8% over two years for non-dollar holders.. For dollar holders, up 25%. Red line is when Bush took office.

GWB 8 years we all would like to pretend did not happen.

Unfortunately we will have his legacy hanging over us for another 10 years.

 

[megacorp-firee]

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.

Yep, I agree.
Previously I have seen/heard that the price of oil can be separated into 3 major components (at least).
1) supply demand price ? $35 (my numbers)
2) terrorism ? $35
3) weak dollar (because oil is valued in dollars) ? $35

If we get world stablility (not likely soon) then the price would down to $70
If we get world stability and the US stops flooding the market with it's bond, then the dollar would get stronger and the price would start to go back down towards $35 Or at least sub $50
IMHO ... wouldn't that be nice?

 

[al_bundy]

Commodities index up 7-8% over two years for non-dollar holders.. For dollar holders, up 25%. Red line is when Bush took office.

so what did bush do to cause the dollar to slide?

 

[FinanceDude]

so what did bush do to cause the dollar to slide?

Didn't you know? It's Bush's fault for everything, including one of my fillings cracking and the fact it was snowing when the sun was out yesterday...........

 

[DallasGuy]

so what did bush do to cause the dollar to slide?

He got us into a war we shouldn't be in....and by the way, it's already cost the US about $500 billion and counting. That has driven up the US budget deficit and forced the US to sell more bonds...in turn this has driven down the value of the dollar because the US just keeps printing money to cover the huge deficits. I'm sure the war isn't the only reason for the sliding dollar, but it's a big part in my opinion.

 

[tomintucson]

I appreciate Ha's link to the piece penned by Charles Maxwell. I only skimmed the article, as I have subscribed to his views for a number of years, invested accordingly, and retired a little earlier than I would have had I adhered to some of the views expressed here.

I'm posting only to encourage readers of this thread to scroll up to Ha's link and give a few minutes of their time to a thoughtful summary of our energy quandary by someone much smarter than myself. In positioning my investment portfolio for what I hope will deliver preservation of capital with future growth, I'm playing with the big boys, swimming with the sharks if you will, and I'm thus highly motivated to keep abreast of what they're thinking. A really large percentage of the world's best minds work in the bloated money management business...because, well, that's where the money is...

 

[al_bundy]

He got us into a war we shouldn't be in....and by the way, it's already cost the US about $500 billion and counting. That has driven up the US budget deficit and forced the US to sell more bonds...in turn this has driven down the value of the dollar because the US just keeps printing money to cover the huge deficits. I'm sure the war isn't the only reason for the sliding dollar, but it's a big part in my opinion.

so why aren't treasuries yielding 1970's era yields? budget deficit as a percentage of pretty much every metric is about the level when clinton left office.

reason for the dollar being low is probably the fact that the Euro is a real currency now and trusted

 

[eridanus]

budget deficit as a percentage of pretty much every metric is about the level when clinton left office.

Eh? We're looking at different graphs. As a % of GDP, it decreased under Clinton. It has done nothing but gone up under Bush II.

This data comes from the Heritage Foundation, which pulled its numbers from the CBO.

http://www.ombwatch.org/budget/pdf/DeficitPercentageGDP.pdf

Here's the CBO graph itself.

Monthly Budget Review

 

[al_bundy]

back when clinton came in the deficit was around 4% or so and if you look at the numbers, the national debt rose every year of the clinton presidency. even the supposed surplus years

 

[ladelfina]

FD, sure, I guess it could be just "casual"... Other people mentioned the invasion of Iraq (which was being planned in 2000), which is part of it.. but then there're also the Bush tax cuts.

Would you buy a stock with declining revenue and increasing expenses? Better, would you buy a stock where the CEO's STATED POLICY was establishing the declining revenue and the increasing expenses? The dollar is the stock of the US. Sadly, I was almost as much in denial as you are now.. just too afraid to jump ship and put my egg in euros. (Al, you're right.. I think the increased faith in the euro is part of it, too.)

In the 70s we had more mfg.; now the rest of the world makes more of their own stuff, and more of ours. We went from wealth in mfg. to wealth in technology to wealth in houses to wealth in "financial services". Where is future growth going to come from, is the question..

 

[eridanus]

Ladelfina, the CBO agrees with you. The deficit = the tax cuts.

"Based on Joint Committee on Taxation estimates, the tax cuts enacted since January 2001 are costing a total of $258 billion in 2006 (including the increased interest costs of the debt that result from the borrowing that is required to cover the lost revenues)."

The deficit that year? $260B.


edit: read too quickly and didn't notice the shift in argument

 

[Patrick]

I just saw a blurb on CNBC saying Goldman Sachs is predicting $200 oil.

 

[al_bundy]

go look at the total debt every year, not the deficit. Total debt increased every year of the clinton presidency and so did government revenue after the evil tax cuts

from what i remember it takes a 2/3 majority of the senate to pass anything so the democrats are just as much to blame