It's official: The Oil Boom Is Over

[cute fuzzy bunny]

How low will it go?

About $80. Maybe $70.

 

[Leonidas]

About $80. Maybe $70.

I was surprised how quickly the market is willing to go down on any news. It's like the opposite of what it has been for most of the last year when the price went up on any excuse.

But, I bet the O'PECCers fight price reduction tooth and nail. Didn't the Saudis promise us a nice increase in production over their quota just a couple of months ago? I don't know if that ever came about, and if it didn't, I bet we never hear about it again. If it did, I think that they would feel justified in halting the extra production and yanking some supply out of the picture.

I'm watching this again. I think it depends on how, and how quickly, we get to $100. If it keeps doing down at the present rate, and in spite of news that would normally mean a price increase, then I wouldn't be surprised to see $90 real quick. Getting below $90 may not come quickly.

 

[cute fuzzy bunny]

It went up that fast. It can go down that fast.

Look at a chart of oil prices adjusted to 2008 dollars. Oil has only been over $70 twice and only for very short time periods. Going with the long term trend it should be between $20 and $30. Given the more recent trend, it should be at around $70-75.

Didnt I say a couple of months ago that oil was coming down, gold was coming down, the dollar was going to go up, and PRPFX was going to suck as an investment?

Check, check, check...and....check!

 

[Dawg52]

It went up that fast. It can go down that fast.

Look at a chart of oil prices adjusted to 2008 dollars. Oil has only been over $70 twice and only for very short time periods. Going with the long term trend it should be between $20 and $30. Given the more recent trend, it should be at around $70-75.

Didnt I say a couple of months ago that oil was coming down, gold was coming down, the dollar was going to go up, and PRPFX was going to suck as an investment?

Check, check, check...and....check!

Is this Larry Kudlow? Only thing you haven't said is drill drill drill......

 

[Notmuchlonger]

You buy more oil today Ziggy?



drill drill drill!

 

[Leonidas]

Didnt I say a couple of months ago that oil was coming down, gold was coming down, the dollar was going to go up, and PRPFX was going to suck as an investment?

Check, check, check...and....check!

We've always been on the same page on these, although we disagree slightly about the long term strength of the dollar vs the short term. Back on 8/11 I went long on the greenback, and shorted gold and went back in twice as large on an oil short as I had been before.

And oil has gone down just as fast as it went up, at least $40 worth of it. But while I'm not a technician, I do look at charts and I see a speed bump of support at around $85-92. I don't think that's tough resistance to further price drops, but the brakes could come on there. What I see as potentially very strong resistance is the producers like OPECC. They really like $100 a barrel oil and given the recent past, I think that they believe the world can live with oil at that price. It will be a tough sell politically, but I think they will try and take some supply out of the market to try and slow down the drop in prices.

It's not that I don't think we can't get down to $70, but once it gets to $100 I think we will hear brakes squealing and smell rubber burning as a lot of effort gets put in to try and stop the movement.

Oh, and drill, drill, drill!

 

[cute fuzzy bunny]

I havent looked that hard but those offers by the saudi's to increase production were really token ones. I'm not sure how much they're going to want to throttle back production either, unless the price really swoons. They kinda like the money and anything over $40 is pretty juicy compared to historic prices.

Plus it aint all OPEC and OPEC friendly countries producing these days...

Besides, @>$80 the car makers are still going to push engineering of smaller cars and more electric versions, alternative fuels, etc. The oil producers will want to push the price towards $100, but market alternatives (threats and real) will hold it down.

 

[Dawg52]

Boone Pickens just said he thought the Saudi's will cut production to support oil prices. He doesn't think it will go lower than $100. But he's been wrong before.

 

[cute fuzzy bunny]

Hmmm, last time I checked he was pushing wind and solar projects. Oil under $100 would undermine those pretty quick. So I'm guessing his comments are highly self serving.

Isnt this about the same as when Warren tells us that despite last years record numbers, that he expects below average returns next year? And then follows that up by saying that he doesnt see any bargains, days before scarfing up several companies?

 

[Leonidas]

Pickens hasn't been scared of making predictions before. He did make some pretty on-target calls for a while on the way up. But he did blow it in a big way back at the beginning of the year when he started shorting oil at $100. His hedge fund lost a big chunk of money on that one. A couple of months later he called for $125 a barrel and then $150.

 

[cute fuzzy bunny]

I always like experts who make lots of predictions all over the place and reverse their opinions with regularity. I guess after a while they can pick whichever prediction they made which eventually came true.

I'll bet Bill Gross is still holding the "I was right!" press release for when the Dow hits 5000.

 

[Notmuchlonger]

I always like experts who make lots of predictions all over the place and reverse their opinions with regularity. I guess after a while they can pick whichever prediction they made which eventually came true.

I'll bet Bill Gross is still holding the "I was right!" press release for when the Dow hits 5000.

Yep eventually they will be right if you make enough predictions.

 

[Leonidas]

All true, but my boy T-Boone is a billionaire. So, whatever his public prognostications, in private he seems to do quite nicely.

 

[haha]

All true, but my boy T-Boone is a billionaire. So, whatever his public prognostications, in private he seems to do quite nicely.

Yes, I would say Mr. Pickens is lotsa cattle, who cares about the hat. And almost all of his substantial fortune was made speculating on oil and gas and related equities, after he was well past age 65. He can't be too dumb.

Ha

 

[Marquette]

I predict $300/barrel oil by the end of 2009. Better load up, Ziggy!

 

[Leonidas]

Wednesday's UK Times:

Opec's more aggressive members are already speaking of production cuts. Venezuela and Iran have said that $100 per barrel is a benchmark they will defend and an Iranian official said yesterday that as a first step the cartel's members must stop exceeding production quotas, which would imply an immediate cut of about half a million barrels per day.

Oil analysts doubted that Opec would agree to an output cut at its conference in Vienna on September 9, but unease over the price fall is being seen even in Saudi Arabia, the most moderate Opec member. Saudi Aramco has been cutting the discount at which it sells Arab heavy, a poor-quality crude which it uses to calm the oil price, off- ering large quantities at big discounts.

Leo Drollas, of the Centre for Global Energy Studies, said: “[The Saudis] . . . fear heavy oil price falls. They are trying to anticipate that by not putting much oil on the market.”

 

[Notmuchlonger]

I bet Attila and Alexander wouldn't put up with production cuts.

 

[Leonidas]

Pickens just gave an interview on Bloomberg, here's the highlights:

• Dropping oil prices won't affect public opinion on need for a new national energy plan.
• He is long oil.
• OPEC will not let the price go below $100
• The upside on price could be anything in the long run, but the upside is somewhat limited in the short term because
  • there has been significant demand destruction
  • Economic slowdown in Europe and other places
  • Oil will be at $150 one year from today.
• NatGas price weak and that could cause drillers to back off on exploration and development.
  • NG could drop to the $6ish range in the near term
• Production Tax Credit will be extended by Congress
• He's been talking to a lot of members of Congress, and he believes
  • They will provide for transmission corridors to move electricity into the grids from the windmills he wants to see on the Great Plains.
  • Congress understands the need for a new national energy program and that public opinion supports it.

 

[cute fuzzy bunny]

Here's what I think...

- Dropping oil prices will make everyone forget about any sort of energy plan
- OPEC has no control over the price of oil
- Oil will be at $150 next year when we get the next round of tempering. Hell, it'll be $175 by mid summer
- Nothing will be done by anyone regarding electric grid extensions for wind power in at least the next 5 years
- Congress doesnt give a hoot about energy programs except to the extent they're driven by the public and the minute its off their radar, its off congress's radar. In the meanwhile, they're dang happy to keep taking money from the lobbyists that'd like to take a few more sips from the oil barrel before moving on to something else.

Lets revisit in 6-9 months and again in a couple of years. See how it goes.

BTW, saw a guy over at the side of the highway on the way back from the farm. Guy was pouring more gas into his empty Hummer from a 5 gallon can with what looked like his wifes car sitting behind his.

 

[chinaco]

China and India will continue to increase demand. Prices will likely continue to rise.

But, I think the oil consumption (demand) will be driven down or at least growth will be offset by more efficient vehicles and redirecting certain substitutes (like NG). Plus other substitutes. But this process will take years.

We just bought a new car. It gets about 25. City driving was rated at 18 mpgwhen it was new (it is not performing at peak anymore). That vehicle is about 28% more efficient (of course it is smaller in size and engine). That is beginning to happen now.

I believe over the next 4 to 5 years more hybrids will be produced which will further reduce consumption.

There is the other side of the problem also. Two wars in 15 years over oil. Americans are beginning to understand the vulnerability of being too dependent on unstable nations around the world for energy.

 

[Leonidas]

OPEC says no production cuts. From the chart I can see that the announcement must have come out at about 1415 EDT. Wow, there went a quick couple of bucks off the price in about 15 minutes.

The black gold is hovering just over $100 and NatGas has a 7 handle. I wonder how the hedge fund guys are doing today.

 

[cute fuzzy bunny]

Yep, both gold and oil are taking major shots. More to come.

 

[haha]

Yep, both gold and oil are taking major shots. More to come.

Here is what intersts me most of all-supposedly the oil price was dragging down the economy and falling oil prices would stop that.

I guess not, since most everything hit the skids today and bigtime!

ha

 

[cute fuzzy bunny]

It'll take about 5-7 weeks for the New! Lower! price to trickle down to having an effect on the economy.

Just...watch out for that trickle...dont git any on ya.

 

[Donzo]

Now they are talking about $80-90 barrels in the future.....I am so glad I did'nt jump more into energy a few months ago - I have been "sitting on my hands" alot lately. I have my approximate allocation in place and need to just enjoy life -
"stop looking at the market" (delivered like William Shatner in star trek )