Oil - is it moving towards a bubble

[chinaco]

It seems oil is getting bid up. Are commodities like oil and associated industry companies moving into bubble territory?

[Tadpole]

Different energy stocks are not all the same. But if you look at the chart of Chevron at the link below, you will notice that it is still off it's 2007 highs a bit and is subject to spikes and valleys right now. Also, during the last economic downturn, it reacted to the slowing of the economy. I think it is inevitable that as we talk about getting out of Iraq, the price of oil will decrease unless bigger unrest occurs. I'm look for an opportunity to unload some of my CVX before the capital gains rates go up but I must admit that I might invest the gains back somewhere in the energy sector. If I did this right now I'd have over 700% gains/reinvested dividends since I inherited the stock, most of that in the last few years.
CVX

[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

[freebird5825]

ah...memories of odd/even days in the 1970s in gas lines just north of NYC just fired in my brain. at least i got to ride in my mom's 1969 Mustang.
did anyone else do the odd/even day (license plate) thing back then or was it just limited to large cities?

[W2R]

Quote:

Originally Posted by freebird5825 ah...memories of odd/even days in the 1970s in gas lines just north of NYC just fired in my brain. at least i got to ride in my mom's 1969 Mustang. did anyone else do the odd/even day (license plate) thing back then or was it just limited to large cities?

I don't recall, but they did the odd/even license plate thing in San Diego. Even so I remember waiting for hours in gas lines with my baby in the car with me (must have been around 1979?). Ugh.

[ziggy29]

It already is in a bubble. There's always irrational exuberance somewhere. When one bubble pops, the hot money looks for the next thing to chase.

First it was tech stocks. That popped and it went to real estate. That popped and now it's commodities. The question is, what gets hot when commodities pop? Tulips?

[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.

[Walt34]

Quote:

Originally Posted by freebird5825 did anyone else do the odd/even day (license plate) thing back then or was it just limited to large cities?

Yes, I remember doing that. I was fortunate to have a county car so I only filled up my own car about every two weeks.

[ziggy29]

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 that we're in a long-term uptrend given a finite resource, increasing demand and increasing population. But at the same time, fundamentals come nowhere near justifying $105 oil. I don't even think they justify $75 oil.

There are plenty of reasons why many commodities are in a bull market, including the plunging dollar. Nevertheless, I think they're pretty much all way ahead of themselves in irrational exuberance.

[amy5708]

Yesterday I heard an OPEC report on the tube that stated they are keeping supplies low because they want to enjoy the 60+trillion profit made last year off oil.

The sheiks are certain that the bust in the US will severely diminish their profit this year, as the result could decrease barrel prices as much as 70% in the coming years.

[ziggy29]

Quote:

Originally Posted by amy5708 Yesterday I heard an OPEC report on the tube that stated they are keeping supplies low because they want to enjoy the 60+trillion profit made last year off oil. The sheiks are certain that the bust in the US will severely diminish their profit this year, as the result could decrease barrel prices as much as 70% in the coming years.

Indeed, it's the last 10% of marginal demand that probably results in 50% of oil's market price, which is based on the "final barrel." If that 10% of demand vanished, prices would fall off of a cliff.

I think a bust of 70% is overstating it, but a popped bubble dropping 30-50% is certainly foreseeable. Still, the long term trend is inevitably up.

[REWahoo]

Quote:

Originally Posted by ziggy29 I think a bust of 70% is overstating it, but a popped bubble dropping 30-50% is certainly foreseeable. Still, the long term trend is inevitably up.

Yes, yes, and yes. I predict a decline of somewhere in the neighborhood of 30-40%, then it will start back up again. Ridin' the crude roller coaster...

[Khan]

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.

You (and many others) are assuming there is one; just waiting to be revealed/discovered by Yankee ingenuity/unfettered capitalism/Science/...

I don't think so.

[ziggy29]

Quote:

Originally Posted by Khan You (and many others) are assuming there is one; just waiting to be revealed/discovered by Yankee ingenuity/unfettered capitalism/Science/... I don't think so.

Maybe, maybe not. A lot of people never thought we could go to the moon or split the atom.

And many of the technologies we enjoy today would have been dismissed as a pure fantasy 100 years ago. Never say never.

[HFWR]

Quote:

Originally Posted by Khan You (and many others) are assuming there is one; just waiting to be revealed/discovered by Yankee ingenuity/unfettered capitalism/Science/... I don't think so.

It will be solved, one way or another...

Will take massive mindshift, or maybe massive dislocations.

[Independent]

Quote:

Originally Posted by ziggy29 Maybe, maybe not. A lot of people never thought we could go to the moon or split the atom. And many of the technologies we enjoy today would have been dismissed as a pure fantasy 100 years ago. Never say never.

I'd say that if modern human society and science last for another 100 years, we'll find good, new sources of energy.

However, over my lifetime, any replacement for oil is going to be significantly more expensive that oil was in 2000. We're going to see "high" prices for a long time.

The reasoning is that we've known that oil is a finite resource for a long time, there has been plenty of incentive to find something better, but we haven't found anything yet. Therefore, it's likely that there isn't anything in the near term.

[Zathras]

Quote:

Originally Posted by Khan You (and many others) are assuming there is one; just waiting to be revealed/discovered by Yankee ingenuity/unfettered capitalism/Science/... I don't think so.

The technologies already exists. It is a matter of the technologies ramping up to replace oil that is the question, not if the technology exists.

Some areas are also easier to replace oil in than others. For example, passenger vehicles can run on electricity. However, long distance travel is not possible with todays battery technology. So batteries and oil each have their role to play with today's technology.

If I lived in a warmer climate so I could drive a roadster year round, I would have purchased a Tesla Roadster and been driving one later this year. All electrical cars are certainly possible and are starting to make their presence known.

[Rustic23]

The Wall Street Journal Online - Extra

While this is a 2005 article, it points out the problem with oil. If it only cost $5 a barrel to produce, then $100 a barrel would seem like a bubble. While demand in China and India is increasing, it does not seem reasonable it could have increased at the rate of the price of oil.

[ziggy29]

Quote:

Originally Posted by Zathras The technologies already exists. It is a matter of the technologies ramping up to replace oil that is the question, not if the technology exists. Some areas are also easier to replace oil in than others. For example, passenger vehicles can run on electricity. However, long distance travel is not possible with todays battery technology. So batteries and oil each have their role to play with today's technology.

Right. I don't see any one thing "replacing oil" in my lifetime. I do, however, see several technologies each forming a partial replacement.

Plug-in hybrid cars are a perfect example. A pure electric car is impractical because of limited range of batteries and the hours required to recharge them (as opposed to the five minutes to refill the gas tank). But when usage includes a lot of short trips in town and short daily commutes, it seems like a good partial solution. (Of course, we still need to generate the electricity from something, but in general that's far more flexible and somewhat more renewable.)

[Zathras]

Exactly!
Heck, even hydrogen will have a role... someday That is one of those technologies that has a long way to go. But batteries seem to finally be reaching the level they need to for many. Now they just need to get them into production.
Switchgrass ethanol is another good technology. Corn based ethanol really won't work well. But once we get switchgrass to be economical that will open another alternative.

As for the cost of pumping oil, I think $5 is far to optimistic. It may have been that at one time. Or it may only be that if you only consider the pumping cost. However if you include the cost of finding the oil and pumping in tough to get to areas (deep water rigs, sideways drilling, etc) I suspect it is a lot more.