$10 Oil on the horizon?

[greg12]

Mike Maloney is not usually an expert to be brushed aside. If this prediction comes true, then what are the implications for Alberta this time around? Have the oil companies now figured out how to deal with price slumps? Will this drop be too much for them to handle given their costs are currently between $30-$50 per barrel? These videos are well worth watching if you are invested in and around AB.



Part 1 - The context

http://youtu.be/uzef43gdupk



Part 2 - the technical analysis

http://youtu.be/0Wrrzsrb-wg

 

[Thomas Beyer]

Let's not speculate on all sorts of theoretically possible but extremely unlikely scenarios such as




a) what if all Albertans decided to move to BC


b) what if China attacked the US militarily


c) what if a meteor hit Vancouver

d) what if a tsunami swept up the St Lawrence river and hit major Canadian cities including downtown Toronto

e) what if the US invaded Alberta and claimed "the oilsands in now ours"

f) what if Greece became a major car exporter and paid its debt on time


g) what if all cell phones were banned because the wireless waves are linked to brain cancer


h) what if everyone started to use bicycles and stopped using gasoline




Etc



Of course he is right .. we have big INFLATION .. so we invest where the hard assets are: oil, gold, gas, coal, uranium, .. i.e. W-Canada !!



Thus, likely oil will be $200 .. as opposed to $10 !!



Additional thoughts on stagflation here: http://myreinspace.com/forums/p/22840/113185.aspx?#113185

 

[housingrental]

The thing that is so interesting about the future is that it has not happened yet! And we get to see how things play out ..... and this at a low price, like oil at a higher price, is always a possibility....Haven't had the risk / internal strength to invest in Alberta yet....

 

[invst4profit]

$10 may be unlikely but is a significant drop unlikely. Who knows what the future may hold.



Kind of risky investing long distance in a one pony show in my opinion.

Yes Alberta has more than just oil but oil is the only thing really driving

the economy to it's present level.

 

[Thomas Beyer]

[quote user=invst4profit]Alberta ... oil is the only thing


not quite !



oil is TWO sources of oil: conventional and oil sands. Oil sands is more of a mining operation around Ft. McMurray .. and steam injection around Cold Lake.



there is also GAS .. both conventional and fracked "unconventional" shale gas



there is also COAL



All of these FIVE areas have huge reserves for multiples of hundreds of years !!



there is also agriculture (beef, wheat, ..)



there is also Canada's 2nd largest university (UofA) and the 4th or 5th largest I believe (UofC) [UBC, Montreal somewhere in there too with UofT being the biggest]



there is also tourism .. Rocky Mountains and Canada #1 tourist destination, BANFF, is in Alberta !



there is also Canada's largest windfarms in S-Alberta, W of Lethbridge



Of course, in theory, we could all drive electric cars tomorrow, never fly anywhere. Plus, Asia stops buying cars with gasoline engines too .. and stops growing and all the world's energy is now solar, nuclear and wind !



Without oil Canada would look awfully similar to Greece these days !!



Perhaps Canadians ought to be taught how dependent Canada is on its natural resources, be it oil, gas coal, uranium, nickel, gold, uranium or potash !



We are so lucky to live in a country with such abundant resources !



Hardly a "one trick pony"

 

[greg12]

The videos and the theory he presents are far from a "what-if" speculative analysis. He actually explains the fundamentals complete with some common sense technical analysis. While the long term or "telescopic" view for hard assets look great, investors will do well not to ignore extreme realities in the short term. This is the kind of stuff that can greatly affect their business regardless of how prudent and diligent they have been.



[quote user=ThomasBeyer]Let's not speculate on all sorts of theoretically possible but extremely unlikely scenarios such as




a) what if all Albertans decided to move to BC


b) what if China attacked the US militarily


c) what if a meteor hit Vancouver

d) what if a tsunami swept up the St Lawrence river and hit major Canadian cities including downtown Toronto

e) what if the US invaded Alberta and claimed "the oilsands in now ours"

f) what if Greece became a major car exporter and paid its debt on time


g) what if all cell phones were banned because the wireless waves are linked to brain cancer


h) what if everyone started to use bicycles and stopped using gasoline




Etc



Of course he is right .. we have big INFLATION .. so we invest where the hard assets are: oil, gold, gas, coal, uranium, .. i.e. W-Canada !!



Thus, likely oil will be $200 .. as opposed to $10 !!



Additional thoughts on stagflation here: http://myreinspace.com/forums/p/22840/113185.aspx?#113185

 

[Thomas Beyer]

[quote user=greg12]are far from a "what-if" speculative analysis.


His head-and-shoulder analysis of REAL commodities like wheat or corn or gold or OIL is PURE SPECULATION.



Oil is real.



It actually HAS VALUE.



UNLIKE GOLD !



Gold just looks shiny, and can be exchanged for cash or other commodities. Oil burns and propels vehicles or creates heat .. both useful day-to-day purposes ! So does corn, wheat, coal or uranium !



Of course he is warning correctly about too much government borrowing from the future into the present ! That is the very essence of the tea party mandate in the US: stop borrowing so much money from the future. Stop spending. Balanced budgets.And I woudl argue, the main reason of a conservative majority in parliament in Canada in the May 2011 election. Personally, I think far more spending cuts have to happen in Canada too .. ASAP .. as opposed to 2-4 years from now. harper is far too cautious here in my humble opinion. Canada's debt is indeed too high as is most provinces, worst being Ontario as Canada's largest province. Indeed, a problem that has yet to be addressed in Canada !



Could oil go to $10 with far more oil consumers than 20, 10 or even 5 years ago ? Possibly .. but unlikely.



Investment implication: investing in countries or provinces with huge debt is VERY RISKY. Greece ? US ? Ontario ? Quebec ?

 

[invst4profit]

Thomas the "one trick" I was referring to is that oil (more specifically the energy sector) is driving the Alberta economy to the level it is at. A serious drop in value of the energy sector would negatively impact investment in Alberta. Alberta would be no more attractive for investors than any other average provence.

Having said that we can all agree the energy sector is not going to disappear any time soon. However considering the negative impact that a serious drop in the energy sector would have on the immediate economy I would call that a "one trick pony". I doubt cattle, universities or a combination of all economic drivers could maintain Alberta's growth without the driving power of today's high price energy sector.

Drop oil below $100 again and you would immediately begin to see the results.

 

[Thomas Beyer]

[quote user=invst4profit]A serious drop in value of the energy sector would negatively impact investment in Alberta.
of course is would.



ditto: THE OPPOSITE .. namely a growing world with more energy demand would VASTLY POSITIVELY impact the province .. which is the long term trend !!



[quote user=invst4profit]Drop oil below $100 again and you would immediately begin to see the results.


Oil is below $100 .. around $80 .. in US $s .. almost the same as $95 oil in CANADIAN $s.



Alberta with oil over $60 is a very healthy province !

 

[greg12]

In these times, oil demand is less of a factor than the value of the US currency. In 2009-10, I recall the price of oil moving from $31 to $70+ without any real change in inventories. Oil price appears to fall whenever the US$ strengthens. Today, the US$ is strengthening once again as people liquidate stocks and purchase US treasuries for their perceived safety. Last time, a few bankrupt US banks triggered the contagion. Now a few indebted Euro economies + the US are in the heart of things. If there will be another recession, all indicators are that it will be a lot bigger than 2008.


As for Alberta and Oil, Barry McGuire once aptly put it this way: `as we now know, oil price is the tail that wags the dog that is the Economy of Alberta`. What I see however is big opportunity in price drops of the scale that one can only dream about.

 

[invst4profit]

[quote user="Thomas Beyer] Oil is below $100 .. around $80 .. in US $s .. almost the same as $95 oil in CANADIAN $s.



OOPs. I really am out of touch. Too many issues with being a LL in Ontario to have time to take a breath and look beyond my boarders.

 

[bizaro86]

The only conceivable way oil can go to <$10 for any length of time is with a replacement fuel for transportation. It can't be a supply/demand drop from the economy, becasue at $10 even Saudi Arabia would be losing money per barrel, so production would be shut in all over the world. (Currently reading Twilight in the Desert, which is great) As production (supply) decreased it would get lower than demand, pushing the price back up. Is $30-$45 oil possible, sure. Is $10, not for long.



Of course, if oil did go to $10 due to a technological substitution, the last one out of Alberta would have to turn off the lights...



Regards,



Michael

 

[Thomas Beyer]

[quote user=bizaro86]replacement fuel for transportation.


natural gas is the only viable alternative .. and that conversion has now started for buses, large trucks and taxi cabs as conversion costs are expensive and make sense for long distance fleets only.



Electric batteries fall WAY SHORT .. with an energy density of 50 times LESS i.e. a kg or liter of gasoline can carry a car 50 times the distance than one kg of an electricly charged battery. So even if it improves factor 6 electric battery powered vehicles will be used mainly for city driving or short distance for the foreseeable future.



The 3rd alternative is a nuclear reactor, which is used on some sub-marines and some oceanliners.



We oil below $40 in 2009 for a few weeks. So if oil is below $50 again for a while: start buying oil stocks as it'll go up again in short order !

 

[bizaro86]

[quote user=ThomasBeyer]natural gas is the only viable alternative .. and that conversion has now started for buses, large trucks and taxi cabs as conversion costs are expensive and make sense for long distance fleets only.



Electric batteries fall WAY SHORT .. with an energy density of 50 times LESS i.e. a kg or liter of gasoline can carry a car 50 times the distance than one kg of an electricly charged battery. So even if it improves factor 6 electric battery powered vehicles will be used mainly for city driving or short distance for the foreseeable future.



The 3rd alternative is a nuclear reactor, which is used on some sub-marines and some oceanliners.



We oil below $40 in 2009 for a few weeks. So if oil is below $50 again for a while: start buying oil stocks as it'll go up again in short order !


I completely agree with this, mainly for the energy density and fueling infrastructure reasons, as well as the all important cost. I wasn't trying to imply that was likely, more that it wasn't likely, barring someone in a garage coming up with a black-swan type invention. (Small scale cold fusion or whatever).



I've thought about it extensively and determined it is unlikely to happen. It's important to me, as my personal economic future is very leverage to energy prices in a number of ways.



Regards,



Michael

 

[Thomas Beyer]

I get it that Michael M likes silver and gold .. makes a decent inflation hedge, at least in weak US $s.



Here is the price of silver (via the ETF SLV) for 2 years .. up up up .. then down 40% since its peak in 1Q 2011.



Here for 5 years. It too dropped in the crash of 2008/2009.



Question now is: time to buy ? or wait for further drop ?

 

[bizaro86]

[quote user=ThomasBeyer]Question now is: time to buy ? or wait for further drop ?





Silver is interesting. It's a metal making a transition from being primarily industrial uses (eg photography) to primarily investment uses, as the supply of gold hasn't kept up with investment demand and some are pushed into silver. Because the investment market for silver is much less liquid than that of gold, it is considerably more volatile.



I had some silver I bought for $9/oz and sold over $40/oz, but I won't be getting back into that market until I'm convinced it's stabalized. If I miss a big leg up, so be it. I am of course continuing my numismatic pursuits, many of which contain silver.



Regards,



Michael

 

[greg12]

[quote user=ThomasBeyer]



Question now is: time to buy ? or wait for further drop ?






Definitely time to start buying! But I would go in via gradual dollar cost averaging as the drop appears to be on-going for now. I've been buying since it was around $17 last year. Back then, Maloney (alongside Kiyosaki) gave a similar analysis to this oil one on why he believed Silver was about to take off. My only regret was that I didn't buy enough. Silver, like oil is being consumed by industry. Also, for the 1st time in history, there is more Gold than Silver on the planet.

 

[greg12]

[quote user=bizaro86][quote user=ThomasBeyer]Question now is: time to buy ? or wait for further drop ?





Silver is interesting. It's a metal making a transition from being
primarily industrial uses (mainly photography) to primarily investment
uses, as the supply of gold hasn't kept up with investment demand and
some are pushed into silver. Because the investment market for silver is
much less liquid than that of gold, it is considerably more volatile.



I had some silver I bought for $9/oz and sold over $40/oz, but I won't
be getting back into that market until I'm convinced it's stabalized. If
I miss a big leg up, so be it. I am of course continuing my numismatic
pursuits, many of which contain silver.



Regards,



Michael


Silver is definitely not for the short term investor. If you believe that the Fed and other central banks will eventually have to stop printing money and replace paper currency with something else, then you are in the right vehicle. There are some price manipulations going on right now by JP Morgan via ETFs backed by no physical Silver. I would advise anyone interested in Silver to read up and get fully educated. Only then does it become super easy to discern the noise from the real stuff.

 

[wgraham]

[quote user=ThomasBeyer]Question now is: time to buy ? or wait for further drop ?


This is the million dollar question that nobody knows because there is no rationality in the market! It is completely irrational!



Quit worrying about the stock market and go deposit your rent cheques!

 

[greg12]

[quote user=wgraham]



Quit worrying about the stock market and go deposit your rent cheques!


We landlords have all been there done that. Being focused too much on the micro view until one day we start realizing that the cheques are getting skinnier and the suppliers of the cheques are becoming fewer. Why?? After all we have been impeccable landlords and we own impeccable properties in great neighborhoods! Our real estate is "separate" from all the other markets out there (indeed). Times have changed and so must the strategies the we use.