Oil - is it moving towards a bubble

[al_bundy]

they had a guy on bloomberg last night saying he thinks oil should be only $50. he is some fund manager specializing in energy.

personally i think that for oil to hit bubble territory you need to have a chart like nasdaq 2000 or taser from a few years ago. the last leg needs to be a line almost straight up in a very short time frame as people put money in there based on emotion and not fundamentals

[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.

[eridanus]

Quote:

Originally Posted by al_bundy who knows i was watching Fast MOney on CNBC last night and they said in the 1970's oil went up lik 1800%. so far it's up only 300% in this decade. so if we are going to be in stagflation like all the talking heads are saying than we have a lot more for oil to go up

The price spike and gas station lines were because OPEC cut off the pipes in 1973. OPEC doesn't have as much control as they did then.

Crude Oil (constant dollar)

With 2 billion Chinese wanting cars, I don't think we'll ever see oil at $20 again.

[al_bundy]

with the chineese it's a lot easier for them to use ethanol or some gee whiz tech since they have very little infrastructure. in the US it's a much higher cost of entry for new tech

[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.

[Midpack]

Quote:

Originally Posted by Zathras I do believe there is a commodities bubble forming. I also believe oil is a bit different. As oil is a finite resource and I believe we either have reached, or will reach (within 2 years) a point where the world can't produce any more oil any faster than it already is. Add to that the ever increasing demand from developing nations and I don't see any crash in oil prices. Sure, the prices may go down 10% to 15% in the short term. But year over year I suspect we will continue to go up until we get a widespread alternative to oil.

I agree, so much so that my VGENX will be in my AA for many, many years.

[al_bundy]

i never understood the love of biofuels and it's nothing more than the agriculture law that congress passes every few years to give pork to flyover country

there is enough oil in the US and Canada that hasn't been touched yet and not including ANWR to last us hundreds of years at current levels. once we get a big city democrat or a desert republican into the white house this madness will end

[Marquette]

Quote:

Originally Posted by al_bundy there is enough oil in the US and Canada that hasn't been touched yet and not including ANWR to last us hundreds of years at current levels. once we get a big city democrat or a desert republican into the white house this madness will end

You should go get it; you'll be a very rich man.

[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?

[kjpliny]

If you consider the vast amount of energy available from a barrel of oil, and the benefits industry and society gain from this highly dense, versatile, easily transportable commodity, I think it's safe to say it's value is actually much, much higher than $105.

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.

[REWahoo]

Quote:

Originally Posted by Texarkandy 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?

You really think someone like Chavez down in Venezuela would do something like that?

[HFWR]

Quote:

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?

Oil is consumed at the rate of 86m bbl/day, which is a pretty big market, but probably still tweakable at the margins...

[HFWR]

Quote:

Originally Posted by REWahoo You really think someone like Chavez down in Venezuela would do something like that?

Candidate for the 51st state...

Do you smell sulfur, Hugo?

[Independent]

Quote:

Originally Posted by al_bundy i never understood the love of biofuels and it's nothing more than the agriculture law that congress passes every few years to give pork to flyover country there is enough oil in the US and Canada that hasn't been touched yet and not including ANWR to last us hundreds of years at current levels. once we get a big city democrat or a desert republican into the white house this madness will end

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.

[Rustic23]

Quote:

Originally Posted by Independent 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.

In lies the problem. In the oil crunch of the 70's, folks rushed out and cranked alternate energy projects. Shale oil for one. They lost their shirts! Turns out there was/is enough cheap oil for the producers to lower the price and drive them out of business. Unless government is going to guarantee $65 to $100/barrel price, private investors will not take the risk.

[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.

[haha]

Quote:

Originally Posted by eridanus OPEC doesn't have as much control as they did then.

Back then, there was large excess capacity outside OPEC. When the cartel was instituted that capacity began to be produced. Once it was online the price plummeted, in part due to the new non-OPEC capacity, and in part from conservation efforts.

On the other hand, today there is almost no excess outside OPEC, and a questionable amount inside it. Also there is small production growth outside OPEC to offset field depletion, and even less visibility of new supply 4 or 5 years down the road. To my way of thinking, this would increase OPEC control, not decrease it.

Quote:

With 2 billion Chinese wanting cars, I don't think we'll ever see oil at $20 again.

That seems like a safe bet.

Ha

[HFWR]

Maybe $20 for a quart of oil...

[Independent]

Quote:

Originally Posted by Rustic23 In lies the problem. In the oil crunch of the 70's, folks rushed out and cranked alternate energy projects. Shale oil for one. They lost their shirts! Turns out there was/is enough cheap oil for the producers to lower the price and drive them out of business. Unless government is going to guarantee $65 to $100/barrel price, private investors will not take the risk.

If the WSJ article is correct, then it seems the government could guarantee a price. Here's my modest proposal:

The US Federal gov't contracts with private firms that are going to develop the Canadian tar sands. The agreement is to buy X barrels of crude per year, for Y years, at a fixed price of $50 per barrel. The private firms fund their capital investment by issuing bonds denominated in US dollars, so they aren't taking a currency risk.

When the oil is delivered, the gov't auctions it off to the highest bidder.
If the auction price is above $50, the profit is rebated to US taxpayers through an FIT credit.
In that case, we're paying a lot for gasoline, so the rebate brings our actual cost down to the $50.

If the auction price is below $50, the loss is recoverd from US taxpayers through an FIT surcharge.
In that case, gasoline is cheap, and the surcharge brings our actual cost up to the $50.

We've essentially hedged the price of crude with a huge futures contract, with a strike price of half the current market.

The fact that nobody has suggested this indicates either a lack of imagination, or a belief that the $15 quoted in the WSJ article isn't representative of the full cost (including environmental impacts) of massive developments of the Canadian tar sands.

[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