Oil tops $75, but still not an all time high, am I crazy?

[laurence]

So I see the headline about Oil being over $75 a barrel, and I thought "wow, we are getting close to that all time, inflation adjusted, high!". I read the article and it has the same little blurb I've been seeing for a year, except the numbers look different: "This is still not as high as the all time, inflation adjusted price of $90 hit during the oil shocks of the 70's"

Now I know I've seen that quote before, but the price was in the $70's. It's starting to feel a little spooky, I had never, ever seen $90 before! This is getting Orwellian! I mean, it's not like I've been tracking this long enough for the (alleged) 2.5% inflation to raise that historical price that much! What's going on? Every time we hit a new high, the inflation adjusted number seems to go up, and we didn't really hit a high! Where are they getting these numbers?

 

[cute fuzzy bunny]

When it hits a new high, they change all the old inflation numbers to compensate.

Just to annoy you and make you think somethings going on.

And theres this one armed man...

 

[justin]

Oil hit ~$40/bbl in 1980-1981. Since then, inflation would make that price increase by about 140%. Therefore, you're looking at ~$90/bbl inflation adjusted oil.

 

[laurence]

O.K., but now it's written down here, I'm taking a screen capture, so next month when you tell me it's $100 I have proof I'm not crazy!

 

[haha]

Personally, I do not believe that the old inflation adjusted high has much to do with anything now. See my old posts on this topic. I believe we are at or are very rapidly approaching the world production peak, and that oil will go higher, and higher, and higher.

There will be setbacks. A big recession will destroy demand causing oil prices to fall. New good sized finds will give the appearance of adequate supply. But annual production has always bounced around.

IMO, very soon we will notice that production on a 5 year MA just isn't increasing as we are accustomed to seeing it increase.

At that point, we might see the mother of all buying panics.

And yes, my money is where my mouth is.

Ha

 

[Cut-Throat]

Personally, I do not believe that the old inflation adjusted high has much to do with anything now. See my old posts on this topic. I believe we are at or are very rapidly approaching the world production peak, and that oil will go higher, and higher, and higher.

There will be setbacks. A big recession will destroy demand causing oil prices to fall. New good sized finds will give the appearance of adequate supply. But annual production has always bounced around.

IMO, very soon we will notice that production on a 5 year MA just isn't increasing as we are accustomed to seeing it increase.

At that point, we might see the mother of all buying panics.

And yes, my money is where my mouth is.

Ha

I'm not in agreement on this. There is a lot of oil in Shale in Canada, and it is very profitable to extract it when the price of oil hits $60 a barrel.

As far as a panic, when gas shot up last year, there was no panic just a decline in usage.

 

[Cool Dood]

So some Palestinians kill and kidnap a couple of Israelis, the North Koreans launch a prematurely exploding missile, and all of a sudden people think oil is worth more? Am I missing something?

Laurence: Maybe next time oil shoots up a bit, people will have realized that engines have also become more efficient, and instead of just talking about inflation-adjusted oil prices, or inflation-adjusted oil prices as a percentage of income, they'll be talking about miles per inflation-adjusted oil prices as a percentage of income! And you'll wonder if they didn't just pull a fast one again..........

 

[terminator]

I think maybe you read that number last year. $70 to $90 would be a 28.5% increase. I didn't check, but is that in line with the CPI increase reported over the last year? That probably explains it.

 

[spideyrdpd]

Your not crazy
It all has to do with the increased usage of dryer sheets.....

 

[Alex]

So I see the headline about Oil being over $75 a barrel, and I thought "wow, we are getting close to that all time, inflation adjusted, high!". I read the article and it has the same little blurb I've been seeing for a year, except the numbers look different: "This is still not as high as the all time, inflation adjusted price of $90 hit during the oil shocks of the 70's"

Now I know I've seen that quote before, but the price was in the $70's. It's starting to feel a little spooky, I had never, ever seen $90 before! This is getting Orwellian! I mean, it's not like I've been tracking this long enough for the (alleged) 2.5% inflation to raise that historical price that much! What's going on? Every time we hit a new high, the inflation adjusted number seems to go up, and we didn't really hit a high! Where are they getting these numbers?

According to this website http://www.fintrend.com/ftf/Articles/Oil_Inflation.asp

what really matters is the average price the refineries had to pay for the whole month.

Adjusted for inflation in May 2006 dollars this $38 peak is the equivalent of paying $99.83 today. This number is constantly changing as we adjust for inflation at the current moment.

In other words, Oil would have to average $99.83 for the entire month to be as high as the price we saw in December of 1979. But we are "only" paying a little over 2/3rds that amount.

seems like we still have a ways to go....

 

[d]

and that oil will go higher, and higher, and higher

i've noticed this about strawberries too!

And theres this one armed man...

everone knew he was up to no good.

 

[cute fuzzy bunny]

O.K., but now it's written down here, I'm taking a screen capture, so next month when you tell me it's $100 I have proof I'm not crazy!

You'll still be crazy.

And you'll be "seeing things" too.

 

[haha]

I'm not in agreement on this. There is a lot of oil in Shale in Canada, and it is very profitable to extract it when the price of oil hits $60 a barrel.

Well, you might well be right. I made a big hit in Suncor, a large producer in the Athabasca Sands development. (since sold). I do feel that although reserves up there are supposedly large, production increases up there will never counterbalance Saudi declines. Of course if the Saudis don't experience decline in overall production, there goes my theory.  They are obviously lying now though, and one wonders why lie if they are not having trouble?

My investment stance vis a vis oil and gas doesn't depend on shortages- in fact I would be better off with moderate tightness in supply, and good demand. A big price drop would of course hurt me.

Ha

 

[Cut-Throat]

Probably a good investment, I just don't see a panic. The price has been high enough now to stimulate R&D of other sources of oil - Shale etc.

Oil companies have been leery to invest because of fear that prices will fall. Higher prices now will probably help different sources in the future.

 

[starboardtack]

IMHO perhaps it is important to note that oil and many other commodities are denominated in US $ on the world market.  Could it be that greater demand and the decreasing value of the US $ may conspire?     As most know, in the case of oil it would seem that increased demand from developing countries + lack of conservation by consuming countries + questionable reserve estimates by vested interests of supplier countries + potential production peak + political vulnerability of some suppliers + imposed US refining capacity constraints + declining value of US $ due to overheated printing presses and ever increasing, burdensome national debt = inevitable large and sustained price increases.  The up side is, as has been pointed out, the higher cost is the catalyst that will increase the rate of technical innovation that will break the oil dependence cycle.   Good investments to be had in the traditional and innovator  areas.   Meanwhile, trim the mainsheet and go where the wind blows.   

 

[kcowan]

I bought my first brand-new car in 1967 - a Volvo sedan for $2800. My first house in 1968 cost $21,500. Oil was cheap too.

The effects of compound inflation only feels awkward when we look at 20 and 30 year periods. In 1981, I was moving cities and had 2 homes that cost $230000 and the bridge financing hit 22% APR. Yes we had a bit of inflation back then!

Now we worry that the Fed rate of under 6% is going to torpedo the economy. Such short memories!

 

[Tadpole]

So some Palestinians kill and kidnap a couple of Israelis, the North Koreans launch a prematurely exploding missile, and all of a sudden people think oil is worth more? Am I missing something?

I have been wondering if they have developed a contingency plan for extracting oil from a nuclear fallout zone.

 

[Ed_The_Gypsy]

AHA!

I offer this quote from an old Canal Zone resident:
"Let's turn sand into glass!"

Oddly enough, Tadpole, the oil should be just fine, way underground as it is. Of course, the roughnecks on the wells may have health problems. But then, they are only contractors and therefore disposable. "When safety is a factor, consider a contractor."